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- The Mexican Peso holds steady as markets digest stronger-than-expected inflation data and global risk sentiment improves.
- Traders shift their focus to Banxico’s May 15 rate decision after both headline and core inflation exceeded forecasts.
- USD/MXN consolidates in a narrow range near support, with upcoming trade and policy signals expected to drive the next move.
The Mexican Peso (MXN) swings between mild gains and losses against the US Dollar (USD) on Thursday, as markets digest stronger-than-expected Mexican inflation data alongside a cautious Federal Reserve and anticipation over a new US–UK trade deal.
At the time of writing, USD/MXN is down 0.16%, trading near 19.597, holding steady within a narrow range after failing to break below key support earlier this week.
Fed caution, Mexican inflation surprise, and Banxico outlook in focus
On Wednesday, the Federal Reserve (Fed) left its benchmark interest rate unchanged at 4.25% – 4.50%, with Fed Chair Jerome Powell emphasizing a “wait-and-see” approach in the face of persistent inflation uncertainty and uneven growth.
Meanwhile, Mexico’s April inflation report showed price growth accelerating to 3.93% year-on-year, above the 3.90% forecast and 0.10 percentage points higher than the same month last year. Core inflation rose 0.49% month-on-month, up from 0.43% in March and exceeding expectations of 0.47%, while headline inflation climbed 0.33%, also above the prior reading of 0.31%.
The upside surprise in both headline and core figures signals persistent underlying pressures and adds complexity for Banxico, which is scheduled to meet next week.
While a 25–50 bps rate cut is still widely expected on May 15, today’s data may prompt policymakers to adopt a more cautious tone or slow the pace of easing thereafter.
Traders are now weighing the implications of the Fed’s “wait-and-see” approach, a mild inflation overshoot in Mexico, and broader geopolitical risks. Market attention is shifting toward next week’s Banxico meeting, with interest rate differentials, trade policies, and political positioning continuing to shape expectations.
Daily digest: Mexican Peso reacts to elevated inflation data
- Sentiment in markets turned risk-on after news that US President Donald Trump is expected to provide details about a trade deal between the US and the UK on Thursday.
- The Banxico is expected to cut rates by between 25 and 50 basis points (bps) on May 15.
- However, an increase in the Core inflation may limit additional rate cuts in the second half of the year
- Fiscal support measures announced for low-income groups on Monday may add stimulus pressure, potentially weighing on the Peso as rate differentials with the US narrow.
- Mexican President Claudia Sheinbaum reaffirmed support for the USMCA (T-MEC) on Wednesday, amid concerns the Trump administration could push for revisions. The agreement provides duty-free access to the US and Canadian markets, which is key for Mexican exports. Any disruption could undermine trade and Peso sentiment.
- Global sentiment has improved since Tuesday, following reports of US-China trade talks scheduled this weekend in Switzerland, where Treasury Secretary Scott Bessent and Jamieson Greer will meet Chinese officials. A constructive outcome could support emerging market assets.
- Mexico remains exposed to targeted US tariffs on steel and auto exports, with broader measures threatened under Trump’s trade agenda. Further escalation could dampen investor confidence and pressure the Peso.
- Mexico’s Q1 Gross Domestic Product (GDP) rose 0.2%, narrowly avoiding recession, while the US economy contracted by 0.3%, missing estimates. Slower US growth raises pressure on the Fed, but policymakers remain cautious on cuts.
- Fed Chair Powell reiterated on Wednesday a data-driven approach, saying, “The right thing to do is await further clarity,” and warned that tariff-driven inflation could delay policy easing.
- Recent US tariffs on key Mexican exports – including metals and autos – have added pressure to the external sector, weighing on trade and investment outlooks.
USD/MXN falls below critical support as bearish momentum gains
USD/MXN is consolidating below the technically significant psychological level of 19.60 at the time of writing on Thursday, which aligns with the 10-day Simple Moving Average (SMA) and the mid-level of the tight range between 19.46 and 19.76 seen since April 18, suggesting fading bullish momentum and indecision among traders.
Support remains anchored at the April low and the bottom of the range at 19.46, with the Relative Strength Index (RSI) falling below 40, reflecting an increase in bearish momentum without entering oversold territory.
A break below Wednesday’s low of 19.56 would re-expose the April low and deepen downside risk.
To regain upward traction, the pair would need a clean daily close above 19.60 and the next psychological resistance level of 19.76, which could open the door toward the 23.60% Fibonacci retracement level of the April move at 19.85, though buyers remain hesitant ahead of next week’s Banxico decision.
USD/MXN daily chart
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
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