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Peso holds above 18.00 as carry trade appeal fades
Narrowing Mexico-US rate differences, alongside Mexico’s 6.50% policy rate and the Fed’s 3.75% to 4.0% range, has driven the peso down nearly 1% year to date and 6.25% in September.
The Mexican peso extended its losses for a third straight day against the U.S. dollar on Wednesday, pushing USD/MXN to stay above the 18.00 level as the carry trade appeal faded, according to FXStreet.
FXStreet linked the move mainly to a shrinking interest rate gap between Mexico and the United States. The Federal Reserve raised its policy rate to a 3.75% to 4.0% range and signaled further hikes if inflation stays above its 2% goal, while the Bank of Mexico held rates for the third straight meeting after completing its easing cycle at 6.50%.
That left a 2.50% interest rate spread, which FXStreet said has underpinned the peso sell-off. The currency has depreciated nearly 1% so far this year, and it is down 6.25% in September.
FXStreet also pointed to U.S. inflation and labor signals, noting the Fed’s preferred Core PCE inflation measure held at 3% in August, with the headline reading at 3.4%. It added that ADP reported private companies added 90K jobs, exceeding the 70K estimate.