Mexican Peso Records Worst Monthly Loss in Over Two Years
- The Mexican peso recorded a 6.38% monthly decline in September, marking its worst monthly performance in over two years.
- central bank announced a 25-basis-point interest rate increase on September 16, pushing the federal funds rate to a range of 3.75% to 4%.
- Concurrently, the Banco de México opted to keep its reference interest rate steady at 6.50%.
The Mexican peso recorded a 6.38% monthly decline in September, marking its worst monthly performance in over two years. Official data from the Banco de México showed the exchange rate closed at 18.0808 units per dollar, compared to 16.9971 units at the end of August. The depreciation was driven by a stronger U.S. dollar following a Federal Reserve interest rate hike and a narrowing interest rate differential between the two nations.
Federal Reserve Policy Shifts Drive Dollar Strength
The U.S. central bank announced a 25-basis-point interest rate increase on September 16, pushing the federal funds rate to a range of 3.75% to 4%. This monetary tightening strengthened the U.S. currency, pushing the Intercontinental Exchange’s Dollar Index up 2.09% from 99.43 points in August to 101.51 units by the end of September.
Concurrently, the Banco de México opted to keep its reference interest rate steady at 6.50%. That decision reduced the yield advantage that had previously supported the Mexican currency through the carry trade strategy. Juan Carlos Cruz Tapia, CEO of MéxFin, noted the impact of these shifts on market volatility.
Juan Carlos Cruz Tapia
The type of exchange finished a month of high volatility, operating between 16.86 and 18.15 pesos. The principal catalyst of the depreciation was a strengthening of the dollar and Treasury yields after the Fed’s rate hike.
Juan Carlos Cruz Tapia
Quarterly Losses and Inflation Data Offer Mixed Signals
For the third quarter ending in September, the peso accumulated a loss of 3.33%, shifting from a June close of 17.4986 units per dollar down to 18.0808. Geopolitical tensions, including the conflict involving the Middle East, along with oil price fluctuations, contributed to the broader quarterly downward pressure.
Despite the monthly decline, the Mexican currency found temporary support from U.S. economic indicators released during the period. The Personal Consumption Expenditures price index—the U.S. Federal Reserve’s preferred inflation gauge—grew at an annual rate of 3.4% in August, falling below the 3.7% increase predicted by analysts.
Upcoming U.S. Labor Data and Geopolitical Risks Shape Market Outlook
Market participants are monitoring forthcoming U.S. labor market reports and developments regarding the conflict between the United States and Iran.