The peso mexicano lost 2.75% over the latest week, its steepest weekly decline since March, while USD/MXN ended Friday near 17.71 pesos per U.S. dollar. Earlier in September, the pair had traded below 16.90, meaning the dollar has gained roughly 5% from those lows in only a few weeks.
The reversal comes after months in which the Mexican peso repeatedly strengthened below 17 per dollar, reviving talk of Mexico’s “super peso.”
Now, much of the same carry-trade logic that supported MXN is moving in the opposite direction.
Banxico Holds at 6.50% While the Fed Turns More Hawkish
The immediate catalyst was monetary policy.
The Bank of Mexico kept its benchmark interest rate unchanged at 6.50% on Sept. 24 for a third consecutive meeting.
At the same time, the U.S. Federal Reserve recently raised its policy rate to 3.75%–4.00%, and several Fed officials have indicated that more tightening may be necessary if inflation remains elevated.
That matters because one of the peso’s biggest advantages has been Mexico’s higher interest rates.
Investors could borrow in lower-yielding currencies and hold peso-denominated assets to capture the difference: the classic carry trade.
But that spread is shrinking.
With Banxico at 6.50% and the upper end of the Fed range at 4.00%, the gap is now only 2.5 percentage points. Expectations of further U.S. hikes or eventual Mexican cuts could compress it even more.
Higher U.S. yields have already been affecting other markets, with the 10-year Treasury yield moving above 5%, making dollar assets increasingly competitive with emerging-market trades.
