USD/MXN heads towards 18.70 as Iran tensions deepen Mexican Peso sell-off

• A 1.49% jump takes USD/MXN to 18.70, close to an 11-month high.
• The Dollar attracts safe-haven demand as US-Iran tensions intensify.
• The Peso’s carry-trade appeal faces pressure from a shrinking US-Mexico interest rate gap.

Losses of over 1.49% against the US Dollar left the Mexican Peso weaker for a second consecutive day, with USD/MXN trading at 18.70, close to 11-month highs. Oil prices remain supported by the US-Iran conflict, raising the likelihood that the Federal Reserve might increase interest rates to curb high inflation.

Mexican Peso falls sharply as geopolitical risks and a smaller rate gap bolster the Dollar

The intensifying US-Iran conflict appears to be weighing on the Peso. According to recent reports, a US official said the State Department is preparing an order for some personnel and family members to leave US embassies near the Persian Gulf.

Iran’s Foreign Minister had earlier said the country was willing to give diplomacy another chance, but that choosing war would bring the US an even greater strategic failure. Meanwhile, Fars reported that multiple explosions had been heard in Sirik, although the source and nature of the sounds remained unknown.

Heightened tensions in the Middle East typically prompt investors to move out of risk-sensitive currencies, including the Mexican Peso, and seek refuge in the US Dollar.

A shrinking interest rate gap between the US and Mexico also favours further gains in USD/MXN. Towards the end of 2026, the differential will fall from 250 basis points to 200. The Fed is expected to raise rates in December, whereas analysts surveyed in the Citi Mexico Expectations Survey expect the Bank of Mexico (Banxico) to leave rates unchanged in 2026 and towards the end of 2027.

Although some matters remained unresolved, Mexico’s President Claudia Sheinbaum described a trade agreement with the US as “very close”. US President Donald Trump, her counterpart, said that a “great trade deal with Mexico is very close.”

For Mexico, the news is encouraging: settling trade and tariff disputes swiftly with the US, its largest trading partner, would lend support to the Peso. The development follows a Wall Street Journal report on 15 October that tariff and trade deal negotiations had stalled.

Mexico’s October Retail Sales and Mid-Month Inflation figures are next on investors’ radar. The US calendar includes jobless claims for the week ending 17 October, S&P Global Flash PMIs and the University of Michigan’s final October Consumer Sentiment reading.

USD/MXN Price Forecast: Gains extend as technical bias remains bullish

Trading at 18.6908 on the daily chart, USD/MXN has extended its rise well beyond the latest cluster of three simple moving averages around 17.5087, reinforcing a bullish near-term bias. The pair remains comfortably clear of the previous horizontal support at 16.8866. Meanwhile, the Relative Strength Index (14) is elevated near 73, pointing to strong but increasingly stretched upward momentum as the gap between the price and its medium-term averages widens.

The cluster of three simple moving averages near 17.51 provides the first downside support, with the horizontal line at 16.89 further below should a deeper correction develop. No nearby resistance levels are currently marked to constrain the advance. Nevertheless, the overbought RSI indicates that additional gains from here could give way to consolidation or a retreat towards the 17.50 area before buyers seek another move higher.

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