Peso Hits Lowest Levels Since April Amid USMCA Talks Delay and Narrowing Rate Differential

The Mexican peso has hit its weakest levels against both the US dollar and Japanese yen since April. The currency's decline is largely attributed to the recent postponement of USMCA renegotiation talks between the US and Mexico, which has created uncertainty over the outlook.

Takuya Kanda, senior FX analyst at Gaitame.com Research Institute, notes that the fourth round of USMCA renegotiation talks was originally scheduled for September 28-29 but has now been postponed to October. A new date has not yet been set.

The narrowing rate differential between the Federal Reserve's policy rate and the Bank of Mexico's (Banxico) policy rate is also weighing on the peso. Banxico held its policy rate steady at 6.50% on September 24, while the Fed has raised its policy rate to a range of 3.75% to 4.00%. The gap between these two rates has narrowed to just 2.5 percentage points, making it less appealing for investors to engage in carry trades.