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Mexican peso rises, but carry trade unwind still drags USD/MXN
USD/MXN slipped to 18.21 after a peak at 18.35, but the peso is still on track for a 3.0% weekly decline.
The Mexican peso gained 0.5% versus the US dollar, with USD/MXN edging down to 18.21 after peaking at 18.35, according to FXStreet. Even so, the currency remains poised to end the week down about 3.0%, as investors continue to exit the “carry trade.”
FXStreet said the trade is being hurt by a narrowing interest rate differential between the US and Mexico, which it described as the lowest since 2015. The outlet cited a Bank of Mexico private economists survey showing most expect Mexican interest rates to stay unchanged at 6.5% through the end of 2027.
On the US side, FXStreet reported expectations that the Federal Reserve could tighten by at least 25 basis points later this year, which would leave the US-Mexico rate differential at 2.25%. It also pointed to weaker-than-estimated US Nonfarm Payrolls for September, 29K versus an estimate of below 90K, and a rise in the unemployment rate to 4.2% from 4.1%.
FXStreet added that the data and dovish comments from New York Fed President John Williams and Vice Chair Philip Jefferson contributed to a reduction in Fed hawkish expectations.