Mexican Peso dives amid risk-off mood, elevating the US Dollar


  • Mexican Peso exchange rate with the US Dollar registers 1.48% gains as USD/MXN bulls reclaim 18.00.
  • Geopolitical tensions escalate with developments in the Israel-Hamas conflict and the potential involvement of Iran.
  • Banxico’s Deputy Governor Mejia: Inflation would hit the central bank’s target in 2025, with the current policy stance.

Mexican Peso (MXN) witnessed an increase in selling pressure in the mid-North American session, particularly against the US Dollar (USD), as market sentiment deteriorated, sparked by threats of an escalation in the Israel-Hamas conflict. As a consequence, Treasury bond yields in the United States (US) rose, lifting yesterday’s battered US Dollar. The USD/MXN trades at 18.26 after bouncing from daily lows of 17.96.

US President Joe Biden’s visit to Israel sparked an escalation of the conflict after he said Israel was not responsible for a blast that hit a Gaza hospital, contrary to Palestinian claims. His decision to back Israel’s version of events re-ignited tensions across the region, with Iran threatening to enter the conflict. The consequent risk aversion boosted the US Dollar to the detriment of the Mexican Peso.

The Bank of Mexico (Banxico) Deputy Governor Omar Mejia commented on a podcast that the balance of inflation risks has not worsened, reported Reuters. The Banxico official added that the current restrictive monetary policy is succeeding at curbing inflation to its target and that it would reach Banxico’s it by the second quarter of 2025.

The US economic calendar featured Building Permits, which plummeted -4.4% compared to last month’s data, while Housing Starts improved to 7%, from August’s -12.5% plunge.

Daily Digest Market Movers: Mexican Peso sways with market sentiment; USD/MXN reaches 7-day peak

  • US Retail Sales in September grew by 0.7% MoM, above forecasts of 0.3%, but trailed upward revised August’s 0.8%.
  • Industrial Production rose 0.3% MoM, better than expected, and the previous month’s 0.0% reading.
  • Mexico’s GDP in 2023 is expected to hit 3.2%, according to the World Bank and the International Monetary Fund.
  • New York Fed Empire State Manufacturing Index for October fell to -4.6, higher than forecasts of -7 but worse than September’s 1.9 expansion.
  • Philadelphia Fed President Patrick Harker commented the current level of rates kept house buyers on the sideline, highlighting that the Fed is likely done hiking rates.
  • According to the Financial Times, Chicago Fed President Austan Goolsbee said the fall in US inflation is not a blip.
  • US Inflation expectations for one year rose from 3.2% to 3.8%, while for five years jumped to 3% from 2.8%.
  • Mexico’s Industrial Production (IP) for August improved by 5.2% YoY, exceeding forecasts of 4.6% and July’s 4.8% increase.
  • Monthly, IP in Mexico rose 0.3%, as expected, but trailed the previous 0.5% reading.
  • The US Consumer Price Index increased 3.7% YoY in September, unchanged from August but above forecasts of 3.6%.
  • US core CPI dipped as expected to 4.1% from 4.3% in August.
  • Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, slightly below the 4.47% estimated.
  • The core CPI inflation in Mexico stood at a stickier 5.76% YoY, as widely estimated, but has broken below the 6% threshold.
  • The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.5% to 3.87% for 2024, above the central bank’s 3% target (plus or minus 1%).

Technical Analysis: Mexican Peso outlook deteriorates, as USD/MXN buyers eye 18.50

The Mexican Peso continues to weaken against the US Dollar after the USD/MXN broke the resistance at 18.10, rallying to a new weekly high of 18.30 before retracing somewhat to current spot prices. Hence, the exotic pair bias remains bullish, and it might test the October 6 high of 18.48 before climbing towards 19.00. On the other hand, if USD/MXN dives below 18.10, traders could expect a test of the psychological 18.00 figure.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.


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