Mexican peso slides toward 18.9 per dollar as Fed hike bets build
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The gist
The Mexican peso weakened over 1.20% to 18.86 per dollar as traders priced a possible Fed rate hike.
A wider US-Mexico rate gap erodes the peso's carry-trade appeal, so watch Q3 GDP.
Background
The peso is Mexico's currency, and Banxico (Bank of Mexico), the country's central bank, aims to keep inflation near a 3% target. For much of the year the peso was a favorite for carry trade — borrowing in a low-rate currency to hold higher-yielding Mexican assets — because Mexico's interest rates sat well above those of the US and other developed economies. That advantage has been narrowing, and the so-called 'superpeso' has given back ground, with the exchange rate now shaped by Middle East negotiations and the economic performance of Mexico and the US.
How it unfolded
- Aug 2025The peso averaged 18.7 per dollar in August, stronger than December's average of 20.3 per dollar.
- Dec 2025In Banxico's December survey, the median analyst estimate for the exchange rate at end-2026 was 19.23 pesos per dollar, with estimates ranging from 17.10 to 20.30.
- Sep 28, 2026On 'black Monday' the peso fell to 18 per dollar, its weakest since last March, and closed at 17.95, a 1.8% depreciation from the prior session, per Bank of Mexico data.
- Oct 1, 2026USD/MXN had gained more than 1.7% over three sessions, showing sustained dollar buying pressure in the short term.
- Oct 28, 2026The Federal Reserve left rates unchanged; Chair Kevin Warsh stayed muted on forward guidance and said there would be seven policy decisions in 2027 and six in 2028. USD/MXN dipped near 18.60.
- Oct 29, 2026The peso was set to depreciate over 1.20%, with USD/MXN at 18.86, as expectations of one more Fed hike in 2026 weighed on the currency. US core PCE inflation rose 3.1% in September and the economy grew 3.4% year-on-year; money markets saw a 76% chance of a Fed hike, down from 84% a day earlier.
- Oct 30, 2026Mexico's Q3 2026 GDP was due, with economists expecting 0.7% quarterly growth and annual growth rising from 2.1% to 2.5%.
Who’s saying what
- Official
- Banxico Deputy Governor Galia Borja said rates at 6.50% are a 'good monetary position' as inflation dips toward the 3% goal, but 'the job is not yet done'.
- Analysts
- Analysts surveyed by Banxico in December 2025 saw the exchange rate at a median 19.23 per dollar by end-2026, within a 17.10 to 20.30 range.
- Bears
- Expectations that the Fed would raise rates once more in 2026 weighed on the peso, with USD/MXN trading at 18.86 on October 29.
Still unverified
The technical analysis in the FXStreet report was written with the help of an AI tool, according to the report.