Mexican Peso faces headwinds as US Treasury yields rebound


  • The Mexican Peso (MXN) starts the week with a 0.30% decline against the U.S. Dollar (USD), with the USD/MXN pair rising above the 17.50 level.
  • Mexico’s Consumer Confidence index fell in October, marking the first significant drop since July 2022, signaling growing consumer pessimism about the economic outlook.
  • Market participants are looking ahead to the Bank of Mexico’s (Banxico) upcoming policy meeting, where rates are expected to remain at 11.25%.

Mexican Peso (MXN) begins the week on the wrong foot against the US Dollar (USD) and loses at around 0.30%, even though market sentiment remains upbeat. A rebound in US Treasury bond yields underpins the Greenback. Consequently, the USD/MXN advances solidly, trading above the 17.50 figure amid a positive market sentiment.

Mexico’s economic docket featured Consumer Confidence in October, which slipped 0.8 points, from 46.8 to 46, revealed the National Statistics Agency (INEGI). This is the first drop since April 2022, which witnessed a contraction of 0.3, and the most significant since July 2022, when confidence dropped 1.6 points. Although the economy is expected to grow more than 3%, consumers are more pessimistic about the future. Meanwhile, USD/MXN traders brace for Thursday’s Bank of Mexico (Banxico) monetary policy meeting, with expectations that the Mexican central bank will keep rates at 11.25%.

Across the border, the US Federal Reserve’s (Fed) decision to hold rates unchanged was justified by weak PMI readings and a softer US Nonfarm Payrolls report. Nevertheless, the drop in US Treasury bond yields loosened monetary conditions after Fed officials revealed that high yields at the long end of the curve tightened monetary conditions, refraining the US central bank from raising rates further.

Daily digest movers: Mexican Peso losses a step as US bond yields underpin the USD/MXN

  • The US Nonfarm Payrolls report reported the economy added 150,000 jobs in October, below estimates of 180,000, and last month’s downwardly revised 297,000.
  • The ISM Manufacturing PMI dropped to contractionary territory at 46.7 in October, below forecasts and September’s 49.0 reading.
  • Mexico S&P Global October Manufacturing PMI at 52.1, above September’s 49.8.
  • Mexico’s Gross Domestic Product grew by 0.9% QoQ in the third quarter on its preliminary reading, above the previous quarter and estimates of 0.8%.
  • On a yearly basis, Mexico’s GDP for Q3 expanded by 3.3%, above forecasts of 3.2% but trailing the previous 3.6%.
  • On October 24, Mexico’s National Statistics Agency, INEGI, reported annual headline inflation hit 4.27%, down from 4.45% at the end of September, and below forecasts of 4.38%.
  • Mexico’s core inflation rate YoY was 5.54%, beneath forecasts of 5.60%.
  • The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%). The next decision will be announced on November 9.

Technical Analysis: Mexican Peso buyers in charge, but sellers eye a recovery past the 50-day SMA

The USD/MXN daily chart portrays the pair as bearish, despite having undergone a slight recovery after diving to a new month low of 17.28 on Friday. The pair also formed a Japanese hammer candlestick pattern at Friday’s lows, although it ended the day painted red, weakening the short-term reversal signal.

If the hammer signals a turnaround, and US Dollar bulls manage to lift the pair past the 50-day Simple Moving Average (SMA) at 17.64, that could open the door to reclaiming the 200-day SMA at 17.69. On the other hand, if bears step in again and drag the exchange rate below the 100-day SMA at 17.11, a test of the 17.00 figure is on the cards.

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.