Mexican Peso reels as Banxico's surprise rate cut fuels easing bets

Banxico surprises markets with a 25-basis-point rate cut in a 3-2 vote.
Borja and Heath dissent, favoring unchanged interest rates at 6.50%.
Markets price an 88% probability of another Banxico cut by year-end.

The Mexican Peso depreciates against the US Dollar after the Bank of Mexico (Banxico) unexpectedly cut interest rates in what it called a “one-time adjustment.” The USD/MXN trades at 19.74, yet it touched a daily low of 18.96.

USD/MXN surges as Banxico unexpectedly cuts rates to 6.25%, increasing speculation about further easing

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

On Thursday, Banxico reduced its main reference rate by 25 basis points to 6.25%, catching market participants off guard, as they had expected rates to remain unchanged at 6.50%. The decision was not unanimous, with a 3-2 majority, with Deputy Governors Galia Borja and Jonathan Heath voting to hold rates unchanged at 6.50%.

Of note, Mexico’s central bank upwardly revised its inflation projections towards the end of 2026 and expects inflation to converge to its 3% goal in Q4 2027.

Consequently, money markets had priced in an 88% chance of another rate cut by Banxico towards the end of the year, according to Prime Terminal.

Banxico interest rate probabilities - Source: Prime Terminal

After the decision, the USD/MXN rose near 19.00, but retreated. However, market participants' expectations of another cut by December increase the chances that the exotic pair could test the 19.00 figure in the near term.

In the US, jobless claims for the week ending October 31 were better than expected at 189K, down from 195K, below forecasts of 196K. Earlier, the firm Challenger, Grey and Christmas reported that job cuts for October increased by just 2%, from 43.281K to 43.994K, while companies expect to hire over 444.692 workers last month, up 57% compared to 2025 figures.

Federal Reserve (Fed) officials crossed the wires. Cleveland Fed President Beth Hammack said she favours a gradual approach to rate increases and that the Fed still has more work to do. Meanwhile, Richmond Fed President Thomas Barkin said “broad-based” inflation remains too high, echoing Hammack's call for a gradual approach.

Ahead, traders brace for October’s Nonfarm Payrolls figures, which are expected to rise to 65K up from 29K in the prior’s month. Additionally, the Unemployment Rate is expected to stay unchanged at 2.9%.

USD/MXN Price Forecast: Technical outlook

Chart Analysis USD/MXN — USD/MXN daily chart

In the daily chart, USD/MXN trades at 18.7545. The pair holds well above its simple moving average cluster, last seen near 17.89, and comfortably above the long-term breakout area linked to the former downtrend line, preserving a constructive bullish bias. The Relative Strength Index (14) hovers around 60, easing from prior overbought extremes but still suggesting underlying positive momentum rather than a completed top.

On the downside, initial support emerges at the simple moving average zone around 17.89, where a pullback could find buyers on a first test. Below that, the horizontal floor at 16.89 stands out as a more distant but important medium-term support, while the prior trend-line break region near 14.70 marks a major structural base that would only come into play if the broader bullish cycle were to unwind significantly.

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

Mexican Peso FAQs

What key factors drive the Mexican Peso?

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.

How do decisions of the Banxico impact the Mexican Peso?

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.

How does economic data influence the value of the Mexican Peso?

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.

How does broader risk sentiment impact the Mexican Peso?

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.