Commerzbank: Banxico policy risk keeps pressure on Mexican peso
The Mexican peso has weakened more than 9% against the US dollar since early September, and Commerzbank analyst Michael Pfister says dovish Banxico policy and USMCA uncertainty are the main drivers.
USD/MXN has climbed from below 17 to above 18.5 in a matter of weeks, a reversal for a currency that had been one of the strongest performers earlier this year. Pfister noted that neither past trade frictions with the United States nor earlier interest rate cuts had previously dented the peso in a lasting way.
Pfister linked part of the shift to the Bank of Mexico’s (Banxico) most recent policy decision, taken when USD/MXN was trading near 17.6, about one peso stronger than current levels. He argued that such a fast depreciation typically strains the domestic economy and adds to inflation pressure, and expects Banxico will eventually need to signal it is ready to tighten policy rather than let the currency slide further.
On other potential supports, Pfister was more cautious. He said USMCA renegotiation is not currently a priority for Washington, raising the chance a deal is not finalized until as late as 2027. A broadly weaker US dollar could also help the peso, but he called this hard to predict given ongoing geopolitical risks.
Still, Pfister pointed to one mitigating factor: he believes markets have already priced in much of the negative news facing the peso, which should limit how much further the currency weakens from here.
Why it matters: Signals on Banxico’s rate path and progress on USMCA talks are key drivers for USD/MXN, and shifts in the pair can also influence broader emerging-market currency sentiment and US dollar positioning.
Source: FXStreet