The Mexican Peso slipped approximately 0.30% on Thursday as rising risk aversion drove investors to safer assets amid escalating tensions in the Middle East, which pushed energy prices higher. Positive US economic data also bolstered the Greenback, leading to a recovery in the USD/MXN pair. At the time of writing, USD/MXN stood at 17.43, having touched a session low of 17.37 earlier in the day.
USD/MXN Rises on Oil Shock and Strong US Economic Indicators
Continued strikes between Iran and the US have intensified concerns that an extended conflict could spark a second round of inflationary pressures due to elevated oil prices. This environment supported a rebound in the US Dollar, bolstered by rising US Treasury yields, with the 10-year Treasury note yielding 4.569%, up 2 basis points.
The US Dollar Index (DXY), which tracks the greenback against six major currencies, rose 0.27% to 100.76.
US economic data came in positive, with June retail sales increasing 0.2% month-over-month, below May’s 1% growth rate and primarily due to higher gasoline prices. Control group retail sales, a key GDP component, slowed from 0.8% to 0.5%, meeting expectations. Additionally, initial jobless claims for the week ending July 11 totaled 208,000, below the forecasted 217,000.
Fed Officials Signal Hawkish Tone
Regional Federal Reserve Bank Presidents Lorie Logan and Jeffrey Schmid expressed hawkish views during separate appearances. Logan, the Dallas Fed president, advocated for a modest increase in the policy rate to better balanced the economic outlook and risks. Schmid, from the Kansas City Fed, noted that while the labor market remains stable, he continues to worry about persistent inflation across various goods and services.
USMCA Trade Talks Progress Between Mexico and USIn Mexico, economic data was limited, but negotiations between Washington and Mexico continued to advance. US Trade Representative Jamieson Greer stated that formal trade discussions with Mexico were moving forward, describing the Mexicans as “quite pragmatic.” However, Greer acknowledged that “our trade deficit with Mexico really is a challenge. It really is a problem.”
Next week, US and Mexican officials will convene in Mexico City for a third round of formal bilateral USMCA negotiations. A favorable outcome in trade talks could provide support for the Mexican Peso, which is positioned to weaken further as the interest rate differential narrows.
The Bank of Mexico (Banxico) is expected to maintain interest rates at 6.50%. Meanwhile, the swaps market anticipates the Federal Reserve to raise rates by 25 basis points, which would reduce the differential to 250 basis points.
USD/MXN Price Forecast: Technical Outlook
On the daily chart, USD/MXN trades at 17.4309, holding just above a cluster of simple moving averages (SMA) around 17.3786, which acts as near-term support and maintains a mildly bullish tone. The pair remains constrained by a descending resistance trend line extending from 18.1651, with the latest peak at 17.5456 serving as the first topside barrier. The Relative Strength Index (14) at approximately 49 suggests momentum is broadly neutral, indicating a consolidative phase rather than a clear directional breakout.
On the upside, initial resistance lies at the recent trend-line reaction near 17.5456, followed by a more distant structural ceiling associated with the longer-term downtrend, where the most recent resistance close stood near 18.1200. On the downside, immediate support is provided by the multi-period SMA zone at 17.3786, and as long as USD/MCN remains above this moving-average floor, dips are likely to remain contained within the prevailing range.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Mexican Peso FAQs
The Mexican Peso (MXN) is the most actively traded currency among its Latin American counterparts. Its value is primarily influenced by the performance of the Mexican economy, Bank of Mexico monetary policy, foreign investment inflows, and remittances from Mexicans living abroad, especially in the United States. Geopolitical developments can also impact MXN, such as the nearshoring trend—where companies relocate manufacturing and supply chains closer to home—which supports the peso as Mexico is a key manufacturing hub in North America. Oil prices are another critical driver, given Mexico’s status as a major oil exporter.
Mexico’s central bank, Banxico, aims to keep inflation at low and stable levels, targeting 3% with a tolerance band of 2% to 4%. To achieve this, the bank adjusts interest rates. When inflation rises above target, Banxico raises rates to cool demand and reduce inflationary pressures. Higher interest rates generally strengthen the Mexican Peso by increasing yield attractiveness for investors. Conversely, lower rates tend to weaken MXN.
Key macroeconomic data releases influence the Mexican Peso’s valuation. A strong Mexican economy—characterized by robust growth, low unemployment, and high confidence—is bullish for MXN, attracting foreign investment and potentially prompting monetary tightening if inflation rises. Conversely, weaker economic data tends to weigh on the peso.
As an emerging-market currency, the Mexican Peso tends to perform well during risk-on periods, when investor sentiment is positive and risk appetite is high. During times of market stress or uncertainty, MXN often weakens as investors seek safer-haven assets.
