USD/MXN Analysis: Can the Peso Recover Against a More Aggressive Fed?

Although the Mexican peso is attempting to regain some ground during today's session, price action throughout the week shows a gain of more than 1.00% in USD/MXN, highlighting buying momentum that continues to favor the U.S. dollar. This strength has persisted even after the Federal Reserve's latest interest rate decision, as the central bank has begun to adopt a more aggressive tone that continues to support the dollar. Meanwhile, Banco de México is expected to maintain a more neutral stance in the near term, a combination that could continue to complicate a more sustained recovery in the peso and contribute to a period of greater indecision within USD/MXN over the coming sessions.

Is the Dollar Becoming a Threat?

This week's market activity has been largely driven by the Federal Reserve's decision to raise interest rates to the 4.00% level while leaving the door open for a more aggressive stance at upcoming meetings. This backdrop is particularly relevant for the U.S. dollar, as higher interest rates tend to increase the relative attractiveness of USD-denominated investments.

The impact is already visible in the performance of the DXY Index, which measures the dollar's strength against a basket of major currencies. Even after the Fed's decision, the index continues to trade above the 100-point mark, maintaining an upward trend and reflecting stable demand for the U.S. dollar in the short term.

Source: TradingEconomics

This environment is important because, as long as markets continue pricing in a more aggressive Federal Reserve and the possibility of higher rates for longer, the dollar may continue to find support. That could limit the Mexican peso's ability to regain ground, a dynamic that has characterized much of the year and could continue to favor periods of indecision or even stronger buying pressure around USD/MXN.

No Surprises Expected from Banxico?

Another key event to watch will be Banco de México's policy decision next week. So far, markets are not expecting any significant change in the institution's stance and continue to anticipate an unchanged interest rate at 6.5%, consistent with the wait-and-see approach that has characterized recent months.

Part of these expectations can be explained by the recent inflation trend in Mexico. As of August, inflation stood at 3.26%, remaining within the central bank's target range of 3.00% ± 1 percentage point. In addition, inflation continues to show a meaningful slowdown from this year's highs near 4.59%, a situation that contrasts with the United States, where inflationary pressures remain more persistent. This backdrop has allowed Banxico to maintain a relatively calmer stance focused on preserving policy stability.

Source: TradingEconomics

However, this situation may not be entirely favorable for the Mexican peso. While Banxico maintains a stable policy stance, the Federal Reserve appears to be moving toward a more restrictive approach. If this divergence continues to widen, Mexico could begin to lose part of the advantage derived from maintaining significantly higher interest rates than the United States. As a result, the relative attractiveness of peso-denominated investments may become more limited, reinforcing a more cautious outlook for USD/MXN.

USD/MXN Technical Forecast

Source: StoneX, Tradingview

• The bearish trend is trying to hold: The dominant technical structure on the chart remains the broad downtrend that has developed over recent months. However, recent price action has started to reflect growing buying pressure, which could begin to challenge this trend if it remains in place over the coming sessions. Under this scenario, a more consistent bullish bias could start gaining relevance in the weeks ahead.
   

• RSI: The RSI remains above the 50 neutral level, reflecting stronger upside momentum over recent sessions. As long as this behavior continues, bullish bias may continue to gain traction.
   

• TRIX: A similar pattern can be observed in the TRIX indicator. Although it has not yet managed to establish itself above its neutral level, it continues to display an upward slope, signaling a gradual exhaustion of the selling pressure seen in recent months. This reading could support a gradual loss of momentum in the prevailing bearish bias.
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Key Levels:

• 17.39 – Major Resistance: A key resistance zone that coincides with important retracement areas and the 200-period simple moving average. Price action moving back toward this level could bring the dominant bearish structure into question and open the door to a more relevant bullish bias in the weeks ahead.
   

• 17.07 – Current Barrier: A level that coincides with an important equilibrium zone on the chart. As long as prices continue to trade near this area, a sense of indecision may continue to dominate, potentially giving way to a broader period of sideways movement.
   

• 16.86 – Key Support: A zone corresponding to lows not seen since 2024 and one of the most important downside barriers within the current structure. A move back toward this level would reinforce bearish control and could favor an extension of the prevailing downtrend in the coming weeks.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25