FX.co ★ Mexican Peso Eases After Banxico

The Mexican peso weakened, exceeding 17.40 per US dollar, partly reversing its recent gains. This came as markets processed Banco de México's decision to maintain the policy rate at 7.00% and express caution regarding future rate cuts. The demand driven by interest rate differentials softened as Banxico recognized heightened inflation risks, adjusted its inflation forecast upward through 2026, and stressed a gradual approach. This bolstered expectations that real yield support would diminish slowly rather than remain robust. Although the central bank's pause constrained downside risks by dissuading anticipation of imminent rate cuts, the peso still faced external pressures. A stronger US dollar and higher US yields increased the opportunity cost associated with holding pesos. Domestically, modest economic growth despite a Q4 recovery and persistent trade uncertainties restricted gains, prompting profit taking after a strong appreciation in January.