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 is expected to leave rates unchanged at its October meeting, 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.
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 is expected to leave rates unchanged at its October meeting, 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.