The Mexican peso weakened to around 17.7 per US dollar in late September, hitting a five-month low after the Bank of Mexico (Banxico) left its benchmark interest rate unchanged. At its September meeting, Banxico held the key rate at 6.50%, diverging from the U.S. Federal Reserve’s latest move to raise borrowing costs.
In its statement, Banxico emphasized that its future policy decisions would not necessarily mirror those of the Federal Reserve, which is widely expected to deliver another rate hike in October. This stance could lessen the attractiveness of peso-denominated assets and reduce the currency’s appeal for carry-trade strategies, as the interest-rate differential with the United States narrows further. A smaller spread, in turn, weakens the peso’s cushion against episodes of global financial volatility.
On the domestic front, Mexico’s unemployment rate came in at 3% in August, in line with expectations and only 0.1 percentage point above July’s reading. The still-tight labor market could support stronger consumer demand and may ultimately push Banxico toward a more hawkish policy stance.
