Can the Mexican Peso Avoid a Weekly Loss as It Rebounds Amid Iran Risk?

The Peso remains on course for a weekly loss of over 1%, despite USD/MXN easing to 18.66.
Mexico records annual economic activity growth of 3.3%, outpacing earlier readings.
Markets price in a 78% probability of a December Fed rate hike as the FOMC decision and PCE data approach.

Despite a deterioration in risk appetite over a possible escalation of the Middle East conflict, the Mexican Peso has gained about 0.32% against the US Dollar on the day. The currency nevertheless remains on track for a weekly decline of more than 1%. Having touched 18.80, USD/MXN is trading at 18.66.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Can resilient Mexican economic activity sustain the USD/MXN retreat amid geopolitical uncertainty ahead of the Fed decision?

Market sentiment deteriorated further following exchanges of fire between the Houthis and Saudi Arabia. The US-Iran conflict also continues to intensify, with US President Donald Trump saying that “we may do another operation against Iran.” At the same time, the IRGC is targeting vessels taking “illegal routes” through the Strait of Hormuz.

Mexico’s Global Economic Activity Indicator (IGAE) recorded a 0.6% MoM rise in economic activity for August. The annual increase stood at 3.3%. These figures are typically published before Gross Domestic Product (GDP) data.

Rising energy prices and expectations that the Fed would hold rates higher for longer weighed on US consumer sentiment in October. The University of Michigan Consumer Sentiment Index edged down from 48.1 to a five-month low of 48. Although inflation expectations held steady, they remained above the Fed’s 2% target, at 4.7% for the next 12 months and 3.5% over five years.

US S&P Global PMI readings matched analysts’ expectations, with manufacturing activity increasing to 56 from 55.9 while services activity moderated to 57.9 from 58.8.

Elevated US producer and consumer inflation readings last week set the stage for additional Federal Reserve tightening. Investors have nonetheless ruled out a rate increase at next week’s Fed meeting. For December, however, the probability of a hike stands at 78%, according to Prime Terminal.

The Federal Reserve’s monetary policy meeting will take centre stage on the US economic calendar next week. It will be followed by the Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure.

Mexico’s GDP release is scheduled for Friday, October 30^th.

USD/MXN Price Forecast: Can the bullish technical bias persist?

Chart Analysis USD/MXN — Daily chart for USD/MXN

A bullish near-term bias remains in place on the daily USD/MXN chart, where the pair is trading at 18.6532 and extending its advance. It sits well above the cluster of simple moving averages around 17.5753 and the former downtrend resistance near 14.8414, which now serves as support. The pair also remains comfortably above the horizontal floor at 16.8866. At 70.48, the Relative Strength Index (14) is close to overbought territory. While upward pressure continues to dominate, this reading suggests the rally could see periods of consolidation or modest corrective pullbacks.

Holding above the 17.58 support zone could allow USD/MXN to test higher levels, as the current technical framework shows no significant resistance immediately overhead. On a decline, the cluster of simple moving averages around 17.58 offers the first area of demand and underpins the broader bullish structure. Horizontal support at 16.89 comes next, while a deeper retreat would still have protection from the breached downward trend line anchored near 14.84.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Mexican Peso: Frequently asked questions

Which factors shape the Mexican Peso’s value?

Among Latin American currencies, the Mexican Peso (MXN) has the highest trading activity. Its value largely reflects Mexico’s economic performance, central bank policy, foreign investment inflows and remittances from Mexicans living overseas, particularly in the United States. Geopolitical developments can also influence MXN. Nearshoring, for instance, involves companies moving manufacturing capacity and supply chains closer to their home countries. It is viewed as a driver of the Mexican currency because Mexico is regarded as a major manufacturing hub in the Americas. Oil prices are another influence on MXN, given Mexico’s position as a key exporter of the commodity.

How does Banxico’s policy affect the Mexican Peso?

Keeping inflation low and stable is the primary goal of Mexico’s central bank, Banxico. It aims for inflation at or near 3%, the midpoint of its 2% to 4% tolerance band, and sets interest rates accordingly. If inflation becomes too high, Banxico seeks to restrain it through rate increases. Higher borrowing costs for households and businesses then reduce demand and cool the wider economy. For the Mexican Peso (MXN), higher rates are generally supportive: the resulting rise in yields makes Mexico more attractive to investors. Lower rates, by contrast, usually weigh on MXN.

Why do economic releases matter for the Mexican Peso?

The Mexican Peso (MXN) can respond to macroeconomic releases because these provide important evidence of the economy’s health. Robust growth, low unemployment and strong confidence are supportive of MXN. Such economic strength draws in more foreign investment and may also prompt the Bank of Mexico (Banxico) to raise interest rates, especially when accompanied by high inflation. Weak economic readings, on the other hand, are likely to lead to MXN depreciation.

How do changes in risk appetite affect the Mexican Peso?

Risk-on conditions generally favour the Mexican Peso (MXN), an emerging-market currency. When investors view overall market risks as low, they are more willing to take on higher-risk investments. During market turbulence or economic uncertainty, the reverse usually occurs: investors sell riskier assets and move into more stable safe havens, leaving MXN under pressure.