Mexican peso falls more than 1% against dollar — Mexico News Daily

The Mexican peso depreciated by more than 1% against the U.S. dollar on Wednesday, with the spot exchange rate reaching 17.50 pesos per dollar. As of 3:20 p.m. Mexico City time, the national currency had lost nearly 20 centavos, extending its weakening over the past several sessions, Mexico News Daily reports.

Expectations regarding Fed policy

Pressure on the peso is linked to the possibility of further interest rate increases in the United States. The market put the probability of another rate hike by the Federal Reserve in October at about 54%.

The Fed recently raised its benchmark rate by 25 basis points to a range of 3.75–4.00%. Market participants interpreted statements by representatives of the U.S. central bank as a signal that the fight against inflation would continue to require tight financial conditions.

Pepperstone analyst Felipe Barragán told El Economista that following the previous rate increase, Fed officials maintained hawkish rhetoric. According to him, this strengthened expectations of up to three additional 25-basis-point hikes by mid-2027.

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Bank of Mexico decision

The exchange rate movement came ahead of the Bank of Mexico's monetary policy decision, scheduled for Thursday at 4:00 p.m. local time. Traders expected the regulator to keep the key rate at 6.50%.

With the Bank of Mexico's rate at 6.50% and the upper bound of the Fed rate at 4.00%, the difference stood at about 250 basis points. A new rate hike in the United States, with Mexican regulator policy unchanged, would narrow this gap and make peso-denominated investments less attractive.

The U.S. dollar was also strengthening in global markets, with the dollar index approaching 100.7 points, its highest level in about eight weeks. Falling oil prices could ease global inflationary pressure, but at that point they had not stopped the strengthening of the U.S. currency.