Mexican Peso rebounds, but carry trade exodus still bites

The Mexican Peso recovers some ground versus the US Dollar, gaining 0.50%, but it remains poised to end the week with a 3% loss as investors exit the “carry trade” amid a narrowing of the interest rate differential between the US and Mexico to its lowest level since 2015. The USD/MXN edges down to 18.21, after peaking at 18.35.

USD/MXN eases as weak US jobs temper Fed expectations

Mexican Peso buyers find some relief, though the USD/MXN uptrend is set to continue amid the narrowing of the interest rate differential. The Bank of Mexico (Banxico) private economists' survey showed that most economists expect interest rates to remain unchanged at 6.50% until the end of 2027.

Conversely, the Federal Reserve is seen tightening monetary policy, at least by 25 basis points, towards the end of the year, which would put the US-Mexico interest rate differential at 2.25%.

Manufacturing data from Mexico showed that activity expanded in September, according to S&P Global, though it warned that the economy remained “quite fragile.”

Across the northern border, US Nonfarm Payrolls in September were below estimates of 90K, coming at 29K, down from 133K. The Unemployment Rate rose from 4.1% to 4.2%, although negative, due to the increase in the participation rate.

This and dovish comments by the New York Fed President John Williams and Vice Chair Philip Jefferson triggered a reduction of Fed hawkish bets for the October 28 meeting. At the time of writing, the odds stand at 23% for a hike, while the chances for a hold are 77%, according to Prime Terminal data.

In Mexico, the economic docket will feature the release of Banxico’s last meeting minutes. In the US, the schedule will feature the ISM Services PMI, jobs data, the release of the Federal Open Market Committee (FOMC) meeting minutes from its last meeting, a speech by Fed Governor Bowman, and the University of Michigan Consumer Sentiment.

USD/MXN Price Forecast: Technical Outlook

In the daily chart, USD/MXN trades at 18.1612. The pair holds above the triple simple moving average cluster around 17.2340 and has also pushed through the prior descending resistance trend-line area near 18.1200, keeping the near-term bias bullish as the spot grinds higher from August lows. The Relative Strength Index (14) at 77.1 shows overbought conditions, hinting that upside momentum is stretched but not yet decisively reversing.

On the downside, initial support emerges at the reclaimed trend-line area around 18.1200, ahead of the triple simple moving average group near 17.23, while a deeper pullback would look toward horizontal support at 16.89. With no meaningful resistance levels immediately overhead in the current setup, price action is likely to be driven by momentum exhaustion signals and profit-taking rather than well-defined topside barriers.