Mexican Peso Weakened Amid Fed Hike Bets and Inflation Expectations

The Mexican Peso experienced some losses against its North American counterpart, the US Dollar, as the USD/MXN rose by over 0.25% to 16.93. This move comes despite the Greenback edging lower against a basket of six currencies, the US Dollar Index.

The situation is partly due to the lingering expectation of a rate hike by the Federal Reserve at its September meeting, with investors pricing in a nearly 61% chance of a 25-basis-point increase. This has led to higher inflation expectations and a strengthening USD.

However, despite the data indicating a stronger-than-expected jobs market, which confirmed Fed Chair Kevin Warsh's saying that the jobs market is 'consistent with full employment', the US Dollar's move faded as investors await upcoming US inflation data on Thursday and Friday. The data includes 12-month inflation for August, expected at 3.3%, up from 3.12% on September 9.

Private economists in Mexico expect interest rates to remain unchanged for the foreseeable future, with Mexico's main reference rate staying at 6.50%. Analysts predict that the Mexican Peso will depreciate to 17.50 by the end of 2026 and to 18.07 by the end of 2027.

The technical outlook on the USD/MXN daily chart shows a bearish near-term tone, with the pair trading below its moving averages and a descending trend line capping price near 17.0838.