USD/MXN regains 18.60 as carry trade unwinding weighs on Mexican Peso

• A rebound from 18.54 takes USD/MXN to 18.68, up 0.60%.
• The Peso's carry-trade attraction faces pressure as Mexico's interest rate advantage narrows.
• The probability of a December Fed rate rise reaches 82% before Warsh's press conference.

A 0.60% decline against the US Dollar marks a reversal for the Mexican Peso, as the US Dollar Index (DXY), which measures the Dollar against a basket of six currencies, strengthens. With most major central banks poised to increase interest rates in response to high inflation, the unwinding of the “carry trade” is weighing on the emerging-market currency. Having recovered from an intraday low of 18.54, USD/MXN is trading at 18.68.

Peso retreats as a narrowing US-Mexico rate gap and expectations of Fed tightening support the Dollar

A further narrowing of the US-Mexico interest rate differential is in prospect. In September, the Federal Reserve increased rates by 25 bps to 3.75%-4%, whereas the Bank of Mexico (Banxico) left its policy rate unchanged.

Local economists in Mexico speculate that Banxico will leave rates untouched for the remainder of this year and throughout 2027. By contrast, expectations are for at least one further Fed rate increase this year, followed by 43 basis points of tightening next year.

Mexico's latest trade figures, meanwhile, showed a September surplus of $1.069 billion, compared with $3.489 billion in August.

Political controversy has also engulfed the National Electoral Institute, the body that organises the country's elections. Following allegations of corruption, its former president, Guadalupe Taddei, stepped down on Monday. Mexican President Claudia Sheinbaum supported the decision.

Next year's mid-term elections are also noteworthy, with the Mexican Chamber of Deputies due for renewal on 6 June 2027.

A full US economic calendar brought an above-forecast rise in the Conference Board (CB) Consumer Confidence reading, which increased to 91.7 in October from 82.2. Durable Goods Orders grew by 1.8%, against September's 0.1%, while ADP Employment Change registered 16.8K, down from the previous 17.5K.

Attention now turns to Wednesday's Fed policy announcement. Although money markets are pricing in unchanged rates at this meeting, they assign an 82% probability to an increase in December.  Investors will then look to Fed Chair Kevin Warsh's press conference for indications of the future course of interest rates.

USD/MXN Price Forecast: Technical bias remains bullish

At 18.6816 on the daily chart, USD/MXN continues to rise comfortably above the 50/100/200-day simple moving averages (SMA), which converge near 17.64 and support a distinctly bullish bias. The advance is testing an area previously marked out by a descending resistance trend line drawn from the 21.08 peak. Meanwhile, a Relative Strength Index (14) reading of 68.9 remains just short of overbought territory, pointing to strong, albeit stretched, upward momentum rather than an imminent reversal.

The cluster of moving averages around 17.64 offers the first support on a decline, followed further below by horizontal support at 16.89. While the spot rate remains above these underlying demand areas, pullbacks are likely to draw buyers. Any fresh reaction to the descending trend-line resistance overhead would, meanwhile, suggest consolidation rather than a lasting top.

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