Banxico's surprise rate cut sends Mexican Peso sliding as easing bets grow

25-basis-point surprise cut: Banxico lowers rates in a 3-2 vote.
A hold at 6.50% is the preference of dissenters Borja and Heath.
An 88% chance of a further Banxico cut by year-end is priced into markets.

USD/MXN trades at 19.74. Having touched an intraday low of 18.96, the pair reflects a weaker Mexican Peso against the US Dollar following an unexpected interest rate cut by the Bank of Mexico (Banxico). The central bank described the move as a “one-time adjustment.”

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

6.25% Banxico rate lifts USD/MXN as surprise cut fuels further easing speculation

A 25-basis-point reduction took Banxico’s main reference rate to 6.25% on Thursday. Markets had anticipated a hold at 6.50%, so the move came as a surprise. The vote split 3-2, with Deputy Governors Galia Borja and Jonathan Heath dissenting in favour of keeping rates at 6.50%.

Mexico’s central bank also raised its inflation forecasts towards the end of 2026. It now anticipates convergence to its 3% target in Q4 2027.

Following the decision, money markets assigned an 88% probability to another Banxico rate reduction towards year-end, according to Prime Terminal.

Banxico rate probabilities: Prime Terminal

An initial rise in USD/MXN towards 19.00 after the announcement gave way to a pullback. Nevertheless, expectations among market participants for another cut by December raise the likelihood of the exotic pair testing 19.00 in the near term.

US jobless claims fell to 189K in the week ending October 31 from 195K, beating the 196K forecast. In an earlier release, Challenger, Grey and Christmas put October job cuts at 43.994K, up just 2% from 43.281K. Companies, meanwhile, expected to hire over 444.692 workers last month, a 57% increase on the 2025 figures.

Comments also came from Federal Reserve (Fed) officials. A gradual approach to rate increases is favoured by Cleveland Fed President Beth Hammack, who said the Fed has further work to do. Richmond Fed President Thomas Barkin echoed that preference for gradual action, saying “broad-based” inflation is still too high.

Attention now turns to October’s Nonfarm Payrolls, with traders preparing for an expected increase to 65K from the previous month’s 29K. The Unemployment Rate is forecast to remain at 2.9%.

18.7545 USD/MXN: Technical Price Forecast

Chart Analysis USD/MXN — USD/MXN: Daily chart

At 18.7545 on the daily chart, USD/MXN remains well clear of its simple moving average cluster, most recently around 17.89. It also sits comfortably above the long-term breakout zone associated with the former downtrend line, keeping the bullish outlook intact. Around 60, the Relative Strength Index (14) has moderated from earlier overbought extremes. Even so, it points to continuing positive momentum rather than a confirmed top.

The simple moving average area near 17.89 provides the first downside support, where buyers could emerge on an initial pullback test. Further below, 16.89 is a horizontal floor and a significant, though more distant, medium-term support level. The former trend-line breakout area around 14.70 forms a major structural base, relevant only if the wider bullish cycle were to reverse substantially.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Mexican Peso: Common Questions

Mexican Peso: What are its main drivers?

Among Latin American currencies, the Mexican Peso (MXN) records the highest trading activity. Its valuation largely reflects Mexico’s economic performance, central bank policy and foreign investment inflows. Remittances from Mexicans living overseas, especially in the United States, also matter. Geopolitical developments can influence MXN as well. Nearshoring, which involves some companies moving manufacturing capacity and supply chains closer to their home markets, is viewed as a catalyst for the currency because Mexico is regarded as a major manufacturing hub in the Americas. Oil prices are another driver, given Mexico’s position as a key exporter of the commodity.

Banxico policy: How does it affect the Mexican Peso?

Keeping inflation low and stable is the primary mandate of Mexico’s central bank, Banxico. This means inflation at or near its 3% target, the midpoint of a tolerance range of 2% to 4%. The bank adjusts interest rates to an appropriate level to achieve that aim. If inflation becomes too high, Banxico seeks to curb it through rate increases. More expensive borrowing for households and businesses then restrains demand and cools the wider economy. By offering higher yields and increasing Mexico’s appeal to investors, higher rates generally support the Mexican Peso (MXN). Lower rates, by contrast, usually weigh on MXN.

Economic data: What does it mean for the Mexican Peso?

Assessing the economy depends heavily on macroeconomic releases, which can also affect the valuation of the Mexican Peso (MXN). Robust growth, low unemployment and strong confidence underpin a healthy Mexican economy and support MXN. Such conditions attract additional foreign investment and may prompt the Bank of Mexico (Banxico) to raise interest rates, especially when economic strength coincides with high inflation. Weak data, on the other hand, make depreciation in MXN more likely.

Risk sentiment: How does it influence the Mexican Peso?

Risk-on conditions typically benefit the Mexican Peso (MXN), an emerging-market currency. When investors judge overall market risks to be low, they are more willing to take on higher-risk investments. During market disruption or economic uncertainty, the reverse tends to occur: investors sell riskier assets in favour of more stable safe havens, leaving MXN weaker.