The Mexican peso has appreciated to approximately 18.27 per US dollar, reaching its highest point since July 2024. This appreciation is attributed to a declining US dollar, along with indications of a robust domestic labor market, both of which bolster the likelihood of the Bank of Mexico (Banxico) maintaining a tight monetary policy stance. The US dollar has weakened largely due to strong expectations of a Federal Reserve interest rate cut in December, fueled by mounting evidence pointing to a cooler US labor market.
In Mexico, the unemployment rate remained steady at 2.6% in October, indicating labor market strength and reducing the necessity for any aggressive policy easing by Banxico. Furthermore, Mexico posted its first trade surplus since June in October, which eased the need for external financing and reduced direct demand for US dollars. In conjunction with these developments, Banxico has also lowered its inflation forecasts for the end of the year, strengthening the case for ongoing disinflation efforts. This allows the central bank to maintain a positive real policy rate, which supports carry trade inflows into the peso.
