FX.co ★ Mexican Peso Nears 1-Year Highs

The Mexican peso appreciated to approximately 18.6 per USD, nearing its one-year peak of 18.537 set on July 23rd. This uptick is attributed to a weakening U.S. dollar and the peso's appealing carry trade profile. Jerome Powell's comments at Jackson Hole increased the likelihood of a Federal Reserve rate cut in September, which pushed the DXY lower, alleviating the overall dollar pressure and lending strength to high-carry emerging market currencies like the peso. Concurrently, Banxico's decision to cut rates by a quarter-point to 7.75% on August 15th was marked by a divided vote. Notably, the minutes from the meeting did not include any previous commitment to further easing, suggesting a gradual approach rather than aggressive monetary policy shifts and maintaining positive real yields. In July, headline inflation eased to 3.51%, while core inflation remained more persistent at 4.23%. This combination supports a controlled pace of rate cuts while preserving Mexico’s attractive yield premium. Additionally, resilient external accounts paired with a mid-year goods surplus ease balance-of-payments concerns, collectively fueling the peso's rally.