Mexican Peso Rises as US Dollar Weakens, Inflation Nears Banxico Target

  • The Mexican Peso gains amid US Dollar weakness and easing trade fears, ignoring mixed data on Mexican economic activity.
  • Inflation in the first fortnight falls to 3.69% year-on-year, approaching Banxico’s 3% target, supporting a moderate policy.
  • Trump’s dovish comments on Mexico at WEF reduce trade concerns; Key GDP and trade data are anticipated.

The Mexican Peso (MXN) soared in early trading during the North American session as mixed economic growth figures emerged in Mexico, although overall weakness in the US Dollar (USD) kept the Peso bid. At the time of writing, USD/MXN is trading at 20.16, down 1%.

The National Institute of Statistics, Geography and Informatics (INEGI) revealed that Economic Activity in November improved monthly but not annually. With more than 2.70% gains, the Mexican currency is set to record its best weekly performance since September 2024.

United States (US) President Donald Trump toned down his comments on Mexico and delivered upbeat remarks about the country at the World Economic Forum (WEF), easing trade policy fears and sponsoring a drop in the USD /MXN.

Meanwhile, inflation in the first half of January approached the 3% target of the Bank of Mexico (Banxico). The Consumer Price Index (CPI) rose 3.69% year-on-year, from 4.44% reported in December, while the core CPI rose moderately from 3.62% to 3.72% year-on-year.

In the US, S&P Global revealed that manufacturing activity moved out of contraction territory but failed to boost the Dollar. Meanwhile, Consumer Sentiment revealed by the University of Michigan (UoM) deteriorated compared to preliminary ratings, while housing data improved across Existing Home Sales.

Mexico’s economy has continued to cool and is expected to grow just 1% in 2025. The slowdown benefited the disinflation process and supports Banxico’s dovish stance.

The Federal Reserve (Fed) is expected to keep rates unchanged. The board’s main reasons for that decision are the strength of the U.S. economy, as evidenced by healthy economic growth, a strong labor market and more persistent inflation figures.

Next week, Mexico’s economic agenda will include the Trade Balance, employment data and the preliminary reading of the Gross Domestic Product (GDP) for the last quarter of 2024.

Market Drivers: Mexican Peso Rises Amid Mixed Economic Activity Figures

  • The Mexican peso advances against the US dollar even though lower inflation figures suggest Banxico will cut rates. Instead, the Fed is expected to keep monetary policy unchanged and wait for the March meeting.
  • INEGI revealed that Economic Activity in November improved from -0.7% to 0.4% month-on-month. In the twelve-month period, the figures fell from 0.8% to 0.5%, missing the projected 0.6%.
  • Citi revealed its Expectations Survey, in which Mexican private economists revised the Gross Domestic Product (GDP) figures for 2025 downward to 1%.
  • Regarding inflation expectations, analysts estimate that headline and core inflation will fall below 4%, each at 3.91% and 3.68%, while the exchange rate is expected to finish near 20.95.
  • Economists estimate that the Bank of Mexico (Banxico) will reduce rates by 25 basis points (bp) from 10.00% to 9.75%, although some analysts expect a 50 bp cut at the February 6 meeting.
  • The US S&P Global Manufacturing PMI for December rose to 50.1 from 49.4, beating the forecast. Meanwhile, the services PMI deteriorated from 56.8 to 52.8.
  • Money market futures have priced in 45 bps of Fed rate cuts in 2025, according to data from the CME FedWatch tool.

USD/MXN Technical Outlook: Mexican Peso Rebounds as USD/MXN Falls Below 20.30

USD/MXN falls below the 50-day SMA of 20.37 and extended its losses towards the 100-day SMA at 20.22, but the bears failed to push prices below the latter as it consolidates near the midpoint of the range 20.20 – 20.30.

Momentum turned bearish as shown by the Relative Strength Index (RSI). Therefore, if USD/MXN falls below 20.20, the next support would be the 20.00 figure. In the event of further weakness, the next support would be the November 7 low of 19.75, before the October 18 low of 19.64.

Conversely, for a bullish resumption, USD/MXN must rise above 20.55 so that buyers have a clear path to challenge the year-to-date (YTD) high at 20.90. Once surpassed, the next stop would be 21.00, followed by the March 8, 2022 peak at 21.46 before the 22.00 figure.

Mexican peso FAQs


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


The main objective of Mexico’s central bank, also known as Banxico, is to keep inflation at low and stable levels (at or near its target of 3%, the midpoint of a tolerance band between 2% and 4%. %). To do this, the bank establishes an appropriate level of interest rates. When inflation is too high, Banxico will try to control it by raising interest rates, which makes borrowing more expensive for households and businesses, thus cooling demand and the economy in general. 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 the MXN.


The publication of macroeconomic data is key to evaluating the state of the economy and can have an impact on the valuation of the Mexican peso (MXN). A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for the MXN. Not only does it attract more foreign investment, but it may encourage the Bank of Mexico (Banxico) to raise interest rates, particularly if this strength is accompanied by high inflation. However, if economic data is weak, the MXN is likely to depreciate.


As an emerging market currency, the Mexican Peso (MXN) tends to rise during periods of risk, or when investors perceive overall market risks to be low and are therefore eager to engage in investments that carry higher risk. . Conversely, the MXN tends to weaken in times of market turbulence or economic uncertainty, as investors tend to sell riskier assets and flee to more stable safe havens.

Source: Fx Street

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