The Mexican Peso (MXN) extended its losses against the US Dollar (USD) for the third consecutive day, with USD/MXN trading above the key psychological level of 18.00. The pair rose by over 0.11% on Wednesday, marking levels not seen since late March, as the carry trade appeal of the Peso diminished due to a narrowing interest rate differential between Mexico and the United States [1]. The Federal Reserve (Fed) raised rates to 3.75%-4% in September and signaled potential further hikes if inflation remains above its 2% target, while the Bank of Mexico (Banxico) kept rates steady for the third straight meeting after ending its easing cycle at 6.50% [1]. This resulted in a 2.50% interest-rate spread, which triggered a sell-off in the Peso. Year-to-date, the Peso has depreciated nearly 1%, with a sharper 6.25% decline in September alone [1].
Recent US economic data contributed to the market moves. The Fed’s preferred inflation measure, the Core PCE Price Index, remained at 3% in August, below the 3.3% forecast, while the headline figure was 3.4%, unchanged from July and under the predicted 3.7% [1]. ADP data showed private companies added 90,000 jobs, beating the 70,000 estimate, supporting Fed Chair Kevin Warsh's view that the labor market is at full employment [1]. These data points led money markets to price in a 66% probability that the Fed will hold rates at its October meeting [1]. Additionally, the US economy grew by 2.2% in Q2 2026, exceeding the 1.5% forecast, though the trade deficit widened in August [1].
From a technical perspective, USD/MXN traded at 18.0675, extending its advance above clustered longer-term simple moving averages around 17.20 and reclaimed downward trend lines, which now act as support. The near-term bias remains bullish, but the Relative Strength Index (RSI) at 83.1 indicates overbought conditions, suggesting a potential pause or corrective phase after the recent surge [1]. Key support levels are identified at 17.20, 16.89, and 15.10 if a deeper pullback occurs [1].
Looking ahead, Mexico’s economic calendar is light, with market participants awaiting September data for Business Confidence and the S&P Global Manufacturing PMI. In the US, attention turns to upcoming Fed commentary, jobless claims, and the release of September’s Nonfarm Payrolls data on Friday [1].
CONCLUSION
The Mexican Peso's sharp decline against the US Dollar is driven by a shrinking interest rate differential and robust US economic data, pushing USD/MXN above 18.00. Market sentiment remains bearish for the Peso, with technical indicators suggesting a possible pause after the recent surge. Investors are now focused on upcoming economic releases from both Mexico and the US for further direction.