Mexican Peso pain deepens above 18.00 as carry appeal fades

The Mexican Peso prolongs its agony, extending losses by over 0.11% against the Greenback for the third straight day, while USD/MXN continues to trade above the psychological level of 18.00 as the carry trade loses its appeal.

USD/MXN stays elevated as shrinking rate advantage drives Peso unwinding

The narrowing of the interest rate differential between Mexico and the US is the main reason the exotic pair continues to rise to levels last seen in April 2026.

During September, the Federal Reserve raised rates to 3.75%-4% and hinted at additional rate hikes if inflation data remains above the Fed’s 2% goal. Conversely, the Bank of Mexico (Banxico) held rates for the third consecutive meeting, after finalizing its easing cycle at 6.50%.

Therefore, the 2.50% interest rate spread between the two countries triggered the Peso’s sell-off, which has so far depreciated almost 1% this year, and in September alone is down 6.25%.

US data revealed that the Fed’s preferred inflation measure, the Core PCE Price Index, stayed at 3% in August, below the 3.3% forecast. The headline was 3.4%, unchanged from July and below the predicted 3.7%.

Earlier, ADP's data showed private companies added 90K jobs, surpassing the 70K estimate and confirming Fed Chair Warsh's comment that the labour market aligns with full employment

The data triggered a reaction in money markets, with traders now expecting the Fed to hold rates at the October meeting, with odds near 66%, according to Prime Terminal.

At the same time, the US economy grew 2.2% in Q2 2026, surpassing forecasts of 1.5%, and reaffirming resilience. Meanwhile, the trade deficit widened in August, according to the US Commerce Department.

Ahead, Mexico’s economic docket is light, with traders eyeing Business Confidence and the S&P Global Manufacturing PMI, both September data releases, on October 1. In the US, traders eye Fed speaking, jobless claims ahead of the release of September’s Nonfarm Payrolls data on Friday.

USD/MXN Price Forecast: Technical Outlook

In the daily chart, USD/MXN trades at 18.0675, extending its advance above the clustered longer-term simple moving averages (SMA) around 17.20 and the reclaimed downward trend lines that previously capped rallies, which now act as underlying demand. The near-term bias is bullish, though the Relative Strength Index (14) at 83.1 signals stretched, overbought conditions that could slow the upside and hint at a pause or corrective phase after the latest surge.

On the downside, initial support is seen at the former resistance trend line near 17.20, closely aligned with the triple SMA group, followed by the horizontal floor at 16.89 and a deeper structural level near 15.10 if a stronger pullback unfolds. With no immediate overhead technical resistance defined in the current dataset, any consolidation or dip toward the 17.20 area would likely be watched as a potential base for the bulls unless the RSI-driven correction extends and forces a break back into the previous range.