FX.co ★ Mexican Peso Near 1-Year Highs

The Mexican peso maintained stability around 18.68 per USD, close to its one-year peak of 18.60 observed on July 10th. This steadiness is attributed to weaknesses in the external dollar, uninterrupted tariff-free access through the USMCA, and favorable domestic interest rate differentials. The US Dollar Index experienced a decline as confidence increased that Washington’s August 1st tariff deadline would not disrupt trade relations. Mexico has thus far evaded retaliatory tariffs, aided by President Trump’s temporary suspension of new tariffs, which has bolstered export competitiveness and alleviated current-account concerns. Domestically, Mexico's central bank, Banxico, reduced its key interest rate by 50 basis points to 8.00% on June 26th, in response to a 4.51% annual inflation rate in July and modest GDP growth against a backdrop of economic slack. Banxico has indicated the potential for further 50 basis points cuts as disinflation progresses. However, it remains poised to pause these reductions if renewed trade tensions or geopolitical disruptions pose risks of peso depreciation and rekindle inflationary pressures, thereby maintaining high real yields and enhancing the attractiveness of the peso.