FX.co ★ Mexican Peso Near 10-Month Highs

The Mexican peso surged to a level below 19.10 per USD, marking its strongest position in nearly ten months. This appreciation is attributed to a softer dollar, reduced trade tensions, and attractive domestic real yields. In May, the U.S. Consumer Price Index (CPI) increased by just 2.4% year-on-year, falling short of expectations. This development led to a decline in U.S. Treasury yields, diminishing the appeal of the dollar as a carry trade. Additionally, reports indicate that Washington and Mexico are nearing an agreement to reverse Trump's 50% steel tariffs, within certain volume limits. Meanwhile, U.S.–China negotiators in London have committed to reviving the Geneva framework and lifting rare-earth export restrictions, thus reducing trade uncertainties and addressing supply-chain bottlenecks. Domestically, the Bank of Mexico's (Banxico) resolve to maintain a restrictive policy, highlighted by headline inflation rising to 4.42% and core inflation reaching 4.06%, the highest in eleven years, has sustained an attractive real interest rate, attracting capital inflows and supporting the peso's ascent.