Mexican Peso plunges as US-Mexico interest rate differential reduces

The Mexican Peso collapses against the US Dollar, depreciating on Monday as market mood sours amid stalled US-Iran talks. News headlines reported that a potential agreement is near, but officials denied the progress. The Bank of Mexico (Banxico) Governor Victoria Rodriguez said that despite recent fluctuations, the exchange rate favors the Mexican currency. The USD/MXN trades at 17.99, up 1.80%

USD/MXN jumps as geopolitical uncertainty and hawkish Fed expectations batter Peso

The Middle East conflict seems far from resolving, even though Iran’s Foreign Minister Abbas Araghchi will meet mediators in New York on Monday. Recently, US President Trump denied Axios claims that the US offered sanctions relief to Iran and the potential unfreezing of Iran’s regime assets.

Soaring US Treasury yields favored the Greenback, which, according to the US Dollar Index (DXY), which measures the American currency value against six other currencies, is up 0.14% at 101.17.

Fed Governor Lisa Cook was hawkish, expecting continued inflationary pressures in the coming months from AI and hostilities in the Middle East.

Aside from this, Banxico’s Governor Rodriguez Ceja said at an interview with El Financiero that "the depreciation [of the peso] relative to levels seen at our previous meeting does not represent additional pressures beyond those already incorporated into our inflation projections, which continue to anticipate a gradual decline in inflation toward the 3 percent target."

Rodriguez added that geopolitical conflicts increase uncertainty in our forecasts and refrained from providing forward guidance regarding the main reference rate, adding that monetary policy in Mexico would “not react mechanically to potential adjustments to the Fed funds rate.”

 Money markets had priced in a 92% chance that Banxico would hold rates at 6.50% for the November 5 meeting, according to Prime Terminal.

The US economic docket ahead features JOLTS job openings, ADP Employment Change, the release of the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, and September’s Nonfarm Payrolls.

USD/MXN Price Forecast: Technical outlook

The USD/MXN daily chart shows the exotic pair turned bullish after clearing key daily Simple Moving Averages (SMAs), including the 200-day SMA at 17.41.

Bullish momentum continues to build, as depicted by the Relative Strength Index (RSI), which has turned overbought, spiking past the 70 level and approaching extreme conditions, with no signs of easing in the short term. Hence, the path of least resistance for the USD/MXN is upwards.

The first resistance is at 18.00. A breach will expose the year-to-date (YTD) high of 18.16, before testing the November 21, 2025, swing high of 18.53. Above, the next key resistance is the November 5, 2025, high at 18.77, before launching an attack on the psychological 19.00 level.