Banxico's surprise rate cut bolsters easing bets and sends Mexican Peso sharply lower

• A 25-basis-point rate cut approved by Banxico in a 3-2 vote catches markets off guard.
• Keeping interest rates at 6.50% is the preference of dissenters Borja and Heath.
• A further Banxico rate cut by year-end carries an 88% probability in market pricing.

An unexpected interest rate cut by the Bank of Mexico (Banxico), described by the bank as a “one-time adjustment,” has weakened the Mexican peso against the US dollar. Having reached an intraday low of 18.96, USD/MXN is trading at 19.74.

USD/MXN jumps as surprise Banxico cut to 6.25% fuels expectations of more easing

A 25-basis-point reduction took Banxico’s main reference rate to 6.25% on Thursday, surprising market participants who had anticipated a hold at 6.50%. The 3-2 decision exposed a split: Deputy Governors Galia Borja and Jonathan Heath preferred to leave rates at 6.50%.

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

According to Prime Terminal, money markets consequently assigned an 88% probability to a further Banxico rate cut towards the end of the year.

USD/MXN climbed towards 19.00 following the announcement before pulling back. Nevertheless, expectations among market participants of another reduction by December make a near-term test of 19.00 more likely for the exotic currency pair.

US jobless claims fell to 189K in the week ending 31 October, from 195K, coming in below the 196K forecast and marking a better-than-expected result. An earlier report from Challenger, Grey and Christmas showed October job cuts rising by just 2%, to 43.994K from 43.281K. Companies expected to hire more than 444.692 workers last month, a 57% increase on the 2025 figures.

Comments also came from Federal Reserve (Fed) officials. With further work still needed at the Fed, Cleveland Fed President Beth Hammack favoured a gradual approach to interest rate increases. Richmond Fed President Thomas Barkin echoed that call for gradualism, saying “broad-based” inflation remained too high.

Attention now turns to October’s Nonfarm Payrolls report, with traders expecting a rise to 65K from the previous month’s 29K. The Unemployment Rate, meanwhile, is forecast to remain at 2.9%.

USD/MXN Price Forecast: Bullish bias holds on the technical chart

At 18.7545 on the daily chart, USD/MXN remains well clear of the cluster of simple moving averages, most recently around 17.89. It also sits comfortably above the long-term breakout zone associated with the former descending trend line, keeping the bullish outlook intact. Although the Relative Strength Index (14) has eased from earlier overbought extremes to around 60, it continues to indicate positive underlying momentum rather than a confirmed top.

The simple moving average area around 17.89 offers the first downside support, with buyers potentially emerging on an initial test during a pullback. Further below, horizontal support at 16.89 provides a more distant but significant medium-term floor. Around 14.70, the earlier trend-line breakout area forms a major structural base; this would become relevant only if the broader bullish cycle unwound substantially.

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