Mexican Peso tumbles as unexpected Banxico rate cut strengthens easing bets

Markets are caught off guard as Banxico approves a 25-basis-point rate cut by a 3-2 vote.
Keeping interest rates at 6.50% is the preference of dissenters Borja and Heath.
Another Banxico rate cut by year-end carries an 88% probability in market pricing.

The Mexican Peso weakens against the US Dollar following an unexpected interest rate cut by the Bank of Mexico (Banxico), described by the central bank as a “one-time adjustment.” Having touched an intraday low of 18.96, USD/MXN is trading at 19.74.

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

Will USD/MXN extend its surge as Banxico’s surprise cut to 6.25% fuels further easing speculation?

Market participants had anticipated an unchanged rate of 6.50%, but Banxico surprised them on Thursday by lowering its main reference rate by 25 basis points to 6.25%. The move passed with a 3-2 majority rather than unanimous support. Deputy Governors Galia Borja and Jonathan Heath dissented, voting to retain the rate at 6.50%.

Alongside the decision, Mexico’s central bank raised its inflation forecasts for the period towards the end of 2026. It now expects inflation to reach its 3% target in Q4 2027.

Following these developments, money markets assigned an 88% probability to another Banxico rate cut towards the end of the year, according to Prime Terminal.

Probabilities for Banxico interest rates - Source: Prime Terminal

An initial rise towards 19.00 in USD/MXN after the announcement gave way to a retreat. Nevertheless, expectations among market participants for another cut by December raise the likelihood of the exotic pair testing the 19.00 level in the near term.

US jobless claims came in better than anticipated for the week ending 31 October. At 189K, claims were lower than both the previous 195K reading and the 196K forecast. Earlier, Challenger, Grey and Christmas reported a rise of just 2% in October job cuts, from 43.281K to 43.994K. Companies expected to hire over 444.692 workers last month, a 57% increase over the figures for 2025.

Comments also came from Federal Reserve (Fed) officials. A gradual approach to interest rate increases was favoured by Cleveland Fed President Beth Hammack, who said the Fed still had more work to do. Richmond Fed President Thomas Barkin echoed her preference for a gradual approach, saying “broad-based” inflation remained too high.

Attention now turns to October’s Nonfarm Payrolls release, with traders preparing for an expected rise to 65K from the previous month’s 29K. The Unemployment Rate, meanwhile, is forecast to remain at 2.9%.

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

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

A bullish bias remains intact on the daily chart, where USD/MXN trades at 18.7545. The pair is well above the cluster of simple moving averages, last located near 17.89, and retains a comfortable margin over the long-term breakout zone associated with the former downtrend line. Around 60, the Relative Strength Index (14) has moderated from earlier overbought extremes. Even so, it continues to point to positive underlying momentum rather than a completed top.

A pullback would first encounter support around 17.89 in the simple moving average zone, where buyers could emerge on an initial test. Further below, 16.89 forms a horizontal floor that remains an important, though more distant, medium-term support. The earlier trend-line breakout region near 14.70 represents a major structural base; it would become relevant only if the broader bullish cycle were to reverse substantially.

(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 movements in the Mexican Peso?

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

How do Banxico’s policy decisions affect the Mexican Peso?

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

Why do economic releases matter for the Mexican Peso’s value?

The Mexican Peso’s (MXN) valuation can respond to macroeconomic releases, which provide important evidence of the economy’s health. Strong growth, low unemployment and high confidence support the currency. Such conditions draw greater foreign investment and may also prompt the Bank of Mexico (Banxico) to raise interest rates, particularly when economic strength is accompanied by elevated inflation. Weak economic readings, on the other hand, are likely to lead to MXN depreciation.

How does market risk appetite affect the Mexican Peso?

Risk-on conditions generally favour the Mexican Peso (MXN), an emerging-market currency. When investors see broader market risks as low, they are more willing to take on higher-risk investments. During market turmoil or periods of economic uncertainty, the reverse tends to occur: investors sell riskier assets and seek more stable safe havens, usually weakening MXN.