Mexican Peso Retreats as Banxico Eases Monetary Policy
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.
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.