Mexican Peso at Strongest Level Since July 2024

The Mexican peso strengthened to around 18.6 per USD in November, recovering from a slump triggered by Banxico’s unexpected cut of its benchmark rate to 6.25%. The narrower rate differential with the US Federal Reserve reduces the appeal of peso-denominated carry trades, weighing on the currency. Banxico also revised its forward guidance, signaling that rates would remain at the new level for an “extended period.” The peso partially recovered after the post-decision move amid optimism over US-Mexico trade talks. Democrats won a majority of congressional seats in the US midterm elections; a Democratic majority could constrain some of President Trump’s trade policy decisions. While USMCA-compliant goods were exempted from Trump administration tariffs, additional tariffs remained on steel, aluminum and automotive imports.

The Mexican peso strengthened to around 18.7 per USD in November after slumping following Banxico’s unexpected decision to cut its benchmark interest rate to 6.25%. The narrower interest-rate differential with the US Federal Reserve reduces the appeal of peso-denominated carry trades, weighing on the currency. Banxico also revised its forward guidance, signaling that rates would remain at the new level for an “extended period.” The peso partially recovered despite heightened global uncertainty following a sharp selloff in technology stocks and increased demand for safe-haven assets. Meanwhile, recent preliminary estimates showed Mexico’s economy grew 0.9% in Q3 from the previous quarter, beating expectations of 0.7%. Banxico also revised its headline inflation forecasts higher for Q4 2026, while slightly raising its core inflation projections.

The Mexican peso weakened to around 18.8 per US dollar after Banxico lowered its benchmark interest rate by 25 bps to 6.25% at its November 2026 meeting, defying market expectations for a hold. The central bank noted that the disinflation process had continued and judged that prevailing economic slack would limit the pass-through of exchange rate movements to consumer prices. It also indicated that keeping rates at the new level for an extended period would support inflation convergence towards its target while helping address external macroeconomic challenges. The narrower interest rate differential between Banxico and the US Federal Reserve reduces the attractiveness of peso-denominated carry trades, weighing on the currency. The peso also surrendered some of its gains following the Democratic Party's victory in the US midterm elections, as markets viewed the outcome as a potential constraint on the Trump administration's ability to maintain elevated tariffs on foreign trade.