Mexican Peso Pulls Back From Mid-2024

The Mexican peso retreated past 17.40 per US dollar giving back part of its recent gains, as markets digested Banco de México’s decision to hold the policy rate at 7.00% and signal greater caution on future easing. Earlier support from carry demand weakened as Banxico acknowledged firmer inflation risks, revised its inflation path higher through 2026, and emphasised graduality, reinforcing expectations that real yield support will narrow only slowly rather than remain firmly anchored. While the central bank’s pause limited downside by discouraging near term rate cut bets, the peso remained vulnerable to external pressure as a firmer US dollar and elevated US yields continued to raise the opportunity cost of peso exposure. Domestically, evidence that growth remains modest despite a Q4 rebound and lingering trade related uncertainty capped upside, encouraging profit taking after January’s strong appreciation.

The Mexican peso rebounded toward the 17.40 per US dollar level after three consecutive sessions of declines, largely reflecting a near-term correction following last week’s sharp selloff driven by a broad resurgence in the US dollar. The earlier drop was triggered by renewed USD strength after the nomination of Kevin Warsh as the next Federal Reserve chair and stronger US data lifted US yields and raised the opportunity cost of holding peso positions, prompting an unwinding of crowded carry trades. Domestically, the pullback was reinforced by evidence that Mexico’s growth momentum remains modest despite a Q4 rebound, cementing expectations that Banco de México will maintain a cautious easing path after cutting the policy rate to 7% in December, gradually narrowing the real yield differential that had underpinned the “superpeso.” Heavy profit-taking after January’s sharp appreciation further amplified the move.

The Mexican peso weakened past 17.4 per US dollar, giving back part of its strong monthly gains that drove it to mid-2024 highs as a firmer US dollar and shifting rate expectations eroded support for carry trades. The reversal was driven by a rebound in the greenback after the nomination of Kevin Warsh as the next Fed chair eased concerns over policy credibility and lifted US yields, increasing the opportunity cost of holding peso positions. Domestically, the pullback was reinforced by evidence that Mexico’s growth momentum remains modest despite a Q4 rebound, cementing expectations that Banco de México will maintain a cautious easing path after cutting the policy rate to 7% in December, gradually narrowing the real yield differential that had underpinned the “superpeso.” Heavy profit-taking after January’s sharp appreciation further amplified the move.