The Mexican Peso extends its depreciation against the Greenback, as the USD/MXN pair rallies over 1.25% amid speculation that the Fed will raise rates more than once, with Fed officials leaning hawkish, underpinning the US Dollar. The exotic pair trades at 17.50, its highest level in nearly two months.
US Dollar surge, tightening bets overwhelm Mexican Peso ahead of Banxico decision
Broad US Dollar strength drives the USD/MXN price action. The Greenback rose over 0.57%, according to the US Dollar Index (DXY), which is up above 101.00, for the first time since late July.
Economic data in the US revealed that business activity in the manufacturing and services sector expanded in September, exceeding estimates and August’s numbers, according to S&P Global.
Speeches by Federal Reserve officials pushed investors to price in nearly 93 basis points of tightening towards the end of 2027.
On Tuesday, Boston Fed Susan Collins warned of elevated inflation risks and backed the rate increase. After her, Richmond Fed President Thomas Barkin said inflationary shocks could take some time.
Recently, Fed Governor Michael Barr noted that further rate hikes are likely needed to ensure a timely return to the 2% inflation target.
In Mexico, traders are bracing for the Bank of Mexico (Banxico) monetary policy decision on September 24. Money markets had priced in a 79% chance that Banxico would keep rates unchanged at 6.50%, revealed Prime Terminal.
Ahead, the US economic docket will feature US Initial Jobless Claims and Fed speaking.
USD/MXN Price Forecast: Technical Outlook
Given the backdrop, the USD/MXN continues to recover ground as the interest rate differential has reduced to its narrowest level since 2015. Further tightening by the Fed and Banxico holding rates steady suggests upside in the exotic pair.
Price action shows that USD/MXN cleared the 200-day Simple Moving Average (SMA) at 17.42, immediately opening the door to challenge 17.50.
The Relative Strength Index (RSI) turned overbought for the first time since early August 2024. Therefore, further upside is seen, as the last time the index peaked above the 70 level, the USD/MXN exchange rate peaked at around 20.06.
If USD/MXN clears 17.50, this paves the way for further gains, with the 18.00 psychological level being up next. Above the next resistance is the March 31 high of 18.16, followed by the November 25, 2025, high at 18.53 and by the November 5 peak of 18.77.
On the flip side, the 200-day SMA is the first support at 17.42. Below is the 100-day SMA at 17.26, followed by the 50-day SMA at 17.15 and the 17.00 figure.
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