Mexican Peso Weakens as Fed Hike Bets Rise

2026-08-28 19:18 By Isabela Couto 1 min. read

The Mexican peso weakened to around 17.04 per US dollar from the more than two-year low of 16.91 touched on August 21, as a more restrictive policy signal from Fed Chair Warsh supported the US dollar.

Warsh said the Fed is tracking the PCE index as its inflation gauge, using firmer rhetoric than earlier suggestions that a newly created task force could shift the central bank’s preferred measure.

Rate futures subsequently shifted toward pricing a potential Fed rate hike next month, pushing US Treasury yields higher and weighing on emerging-market currencies such as the peso.

A Fed hike could narrow the US-Mexico rate differential and reduce the appeal of Mexican assets.

Meanwhile, the Bank of Mexico is expected to keep its benchmark rate at 6.5% in the near term, as inflationary risks from elevated energy prices are balanced by signs of improving economic activity.



News Stream
Mexican Peso Gains on US-Mexico Rate Differential Expectations
The Mexican peso strengthened to around 18.6 per US dollar in October, supported by expectations of a widening US-Mexico interest rate differential. The Federal Reserve left rates unchanged at its October meeting as expected, while Banxico is seen adopting a more hawkish stance at its November meeting. Nevertheless, the peso remains near its weakest levels since mid-2025, following a sharp unwinding of carry trades as the interest rate differential between the Fed and Banxico narrowed. The Fed raised its policy rate to 3.75%–4.00% in September, while Banxico kept its benchmark rate at 6.50%, leaving the spread at 250 basis points, reportedly a historic low. Expectations that the Fed could keep rates higher for longer, alongside a stronger US dollar and elevated risk aversion, have also weighed on the peso, which has depreciated by more than 9% since the beginning of September.
2026-10-26
Mexican Peso Rebounds
The Mexican peso strengthened to around 18.64 per US dollar in October. The currency appreciated following strong economic activity data, with the Global Indicator of Economic Activity rising 3.5% year over year through August, its strongest performance since September 2023. The exchange rate was also supported by expectations that Mexico and the US could reach a trade agreement, following comments by President Claudia Sheinbaum and US President Donald Trump indicating that the two countries were close to a deal. Meanwhile, annual mid-month inflation rose to 3.62% in October from 3.42% in September, slightly above forecasts of 3.60%. Persistent inflationary pressures could encourage a more hawkish stance by Banxico, while markets largely expect the US Federal Reserve to hold rates at its next meeting. A wider US-Mexico interest rate differential would strengthen the peso’s yield advantage and potentially encourage carry-trade inflows.
2026-10-23
Mexican Peso Hits 1-Year Low
The Mexican peso weakened to around 18.78 per US dollar in October, its weakest level since October 2025, as expectations of a narrowing US-Mexico interest rate differential, geopolitical uncertainty and stalled USMCA negotiations weighed on sentiment. Expectations of further easing by the Bank of Mexico, alongside the Federal Reserve's September rate hike, have reduced the peso's yield advantage and encouraged investors to unwind carry trades. Meanwhile, uncertainty surrounding the Middle East conflict has dampened risk appetite, while limited progress in the US-Mexico-Canada Agreement review has clouded the trade outlook. Investors are now awaiting Mexico's first-half October inflation data for further clues on the Bank of Mexico's monetary policy outlook. Headline inflation is expected to accelerate to 3.60% year-on-year from 3.42%, while biweekly inflation is forecast to rise to 0.37% from 0.33%.
2026-10-22