FX.co ★ Mexican Peso Rebounds to July Highs

The Mexican peso has appreciated to beyond 18 per USD, marking its strongest position since July 2024. This surge is underpinned by unexpectedly robust domestic economic activity, persistently high yields in Mexico, and diminished demand for the US dollar. In October, Mexico's IGAE economic activity index exceeded expectations with a significant monthly increase, which eases concerns about a potential steep domestic downturn and reduces immediate pressure for drastic interest rate cuts. Recently, the Bank of Mexico reduced its policy interest rate by 25 basis points to 7.00% as anticipated, yet indicated a data-dependent pause, expressing confidence in inflation gradually aligning with its 3% target, despite core inflation remaining above 4%. With real interest rates still notably high compared to global standards, Mexico remains appealing for carry trades, bolstering peso demand through short-term foreign investment inflows. Concurrently, the US dollar has weakened amid growing expectations for Federal Reserve rate cuts next year and mixed US labor and consumption data pointing towards a cooling economy, thereby further supporting the peso's advancement.