Mexican Peso Weakens Toward One-Year Low

The Mexican peso weakened to around 18.44 per US dollar in October, nearing a one-year low after the release of the Bank of Mexico’s meeting minutes. The currency became one of the worst performers among emerging markets as the minutes left open the possibility of further interest-rate cuts. Most members of the Governing Board said moderating core inflation and weak domestic consumption provide room to continue easing monetary policy into late 2026 and early 2027. Expectations of a narrowing interest-rate differential between Mexico and the US reduced the peso’s appeal in carry trades, boosting demand for dollars in the spot market. Meanwhile, annual inflation rose to 3.45% in September from 3.26% in August. Although slightly below market expectations, the reading added uncertainty to the domestic monetary policy outlook.

The Mexican peso weakened to around 18.4 per US dollar in October, nearing a one-year low and tracking gains by the US currency against other emerging-market currencies. The dollar strengthened amid expectations of further Fed tightening, as elevated inflationary pressures stemming from the Middle East situation coincided with resilient US economic performance. The narrowing interest-rate differential is also undermining the appeal of the Mexican currency. Narrower yield spreads between Mexico and developed economies, combined with expectations that Banxico will keep monetary policy stable, are reducing the incentive for peso carry-trade strategies.

The Mexican peso weakened to around 17.7 per US dollar in late September, reaching a five-month low after the Bank of Mexico left its benchmark interest rate unchanged. Banxico kept its benchmark rate at 6.50% at its September meeting, marking a shift from the Fed’s latest move, when the US central bank raised the cost of credit. Banxico said in its statement that its future decisions would not necessarily follow those of the Federal Reserve. The Fed is expected to raise rates in October. Banxico’s stance could reduce the appeal of peso-denominated assets and the currency for carry-trade operations, as the interest-rate differential would narrow further. A narrower differential reduces the currency’s buffer against periods of international volatility. Meanwhile, Mexico’s unemployment rate stood at 3% in August, matching forecasts and only 0.1 percentage point higher than in July. A tight labor market could boost consumer demand and lead Banxico to adopt a more hawkish stance.