FX.co ★ Mexican Peso Strengthens on Softer USD

The Mexican peso has appreciated to around 18.25 against the US dollar, marking its highest value since July of the previous year. This surge is largely attributed to the US dollar's weakening, reaching its lowest point since early 2022. This decline follows the Federal Reserve's decision in September 2025 to reduce the federal funds rate by 25 basis points, alongside an indication of two more cuts by the end of the year. The Fed's latest projections suggest slightly improved GDP growth, a decline in unemployment, and a slight uptick in inflation for the upcoming year, diminishing the urgency for intense monetary tightening. Concurrently, Banco de México has upheld a stringent policy approach, indicating a cautious adjustment as inflation shows signs of easing. Factors boosting the demand for Mexican assets include favorable real interest rate differentials, robust carry trade appeals in the forward markets, and strong trade links with the United States, all helping to maintain limited capital outflows.