Mexican Peso Holds Strong After Unemployment

The Mexican peso weakened past 18 per US dollar to its lowest since early December as a diverging monetary policy outlook between the US and Mexico reduced the currency’s longstanding carry trade appeal. Traders reacted to the Bank of Mexico unexpectedly resuming its easing cycle with a 0.25% rate cut to 6.75% while headline inflation spiked to 4.63% in mid-March. This move was primarily driven by weakness in domestic economic activity just before the unemployment rate rose to 2.6% in February. Global sentiment further pressured the peso as the dollar strengthened after reports that the Pentagon may send 10,000 more troops to the Middle East while President Trump extended a deadline to attack Iranian energy infrastructure for 10 days. Underemployment at 7.0% and high informal employment at 54.8% alongside narrowing interest rate gaps have limited the peso’s appeal as markets now price in a 50% chance the Federal Reserve could hike rates by December.

The Mexican peso weakened past 17.9 per US dollar after the Bank of Mexico unexpectedly resumed its easing cycle with a 25-basis point rate cut to 6.75%. This decision by a majority of the board came despite a mid-March headline inflation spike to 4.63% and was primarily driven by marked weakness in domestic economic activity during early 2026. Global sentiment further pressured the currency as the dollar strengthened following President Trump’s refusal to commit to a Middle East peace deal which fueled stagflation fears and pushed Treasury yields higher. With Iran showing little willingness to compromise and US strikes against energy infrastructure resuming the persistent risk of oil supply disruptions continues to bolster the greenback. Locally the combination of a manufacturing contraction and narrowing interest rate differentials has limited the peso’s appeal.

The Mexican peso weakened past 17.8 per US dollar as resurging geopolitical uncertainty and disappointing domestic data ended its recent attempt to rebound. Market skepticism regarding a Middle East de-escalation intensified following Iranian denials of direct negotiations and reports that Saudi Arabia and the UAE may join the conflict against Tehran. This environment bolstered the US dollar while driving Brent crude back toward 100 dollars per barrel which rekindled global inflationary fears and led traders to price out Federal Reserve rate cuts for 2026. Locally the peso faced further selling pressure after Mexico’s economic activity index fell 0.9% monthly in January marking its worst performance since late 2024 alongside a manufacturing contraction of 3%. Compounding these growth concerns was a mid-March inflation print of 4.63% that exceeded analyst estimates and challenged the Bank of Mexico’s policy outlook.