Peso's September Slump Raises Questions About Its Future

The Mexican peso's recent depreciation has led to questions about whether it has finally lost its 'super peso' status. In September, the peso weakened by 6.32% against the US dollar, its largest monthly decline since June 2024.

This downturn was triggered by monetary tightening and a reduced interest rate differential with the United States. The peso's value shot back up above 18 pesos per dollar by the end of September, following the US Federal Reserve's decision to raise its benchmark interest rate to 4% on September 16.

Analysts point out that the reduced spread between Mexico and the US, from around 1,000 basis points in August to just 250 basis points, has weakened one of the supports for the 'super peso.' The smaller spread makes the carry-trade mechanism less appealing, reducing demand for pesos.

Janeth Quiroz, an analyst at Grupo Financiero Monex, notes that as the additional return on US Treasury bonds decreases, the incentive to hold positions in pesos falls. Carlos Serrano, BBVA Mexico's chief economist, attributes the depreciation to external factors, including uncertainty surrounding the USMCA free trade deal.

Despite recent volatility, both the central bank and Citi Mexico forecast an appreciation of the peso to 17.50 per dollar by the end of 2026.