The Mexican peso held on to gains against the US dollar after Mexico presented its fiscal package to Congress, while markets waited for US inflation data. USD/MXN was at 16.89, down 0.09% and near yearly lows. The plan points to a 2027 deficit of 3.9% of GDP versus an estimated 4.1% this year, and it pares back support for Petroleos Mexicanos (PEMEX); debt-payment help is targeted at about $4.8bn, almost 70% below this year’s allocation. The proposal also pencilled in 1% to 2% growth and a primary surplus of 0.6% of GDP next year, excluding debt payments, as the 2027 budget debate opens in Congress.
Mexico’s annual inflation for August printed at 3.26%, under the 3.30% estimate and up from 3.12% in July, while core inflation rose to 3.88% against a 3.92% forecast and above Banxico’s 3% ±1% target band. In the US, the ADP 4-week average beat the prior reading, with attention turning to August PPI and CPI from the BLS; a stronger inflation outcome could revive USD/MXN, which is trading below 17.00, and reinforce expectations for a Fed move at the 15-16 September meeting. Technically, USD/MXN was at 16.9044, below the 50-, 100- and 200-day simple moving averages clustered around 17.2154, with resistance also traced from 21.0808 and 18.1651 highs; RSI (14) stood at 34.12, while support was near 16.8866.
Fiscal Policy and Peso Performance
We are watching the USD/MXN closely as it trades near yearly lows around 16.89, heavily influenced by Mexico’s newly proposed 2027 budget. This tight fiscal plan aims to shrink the country’s deficit to 3.9% of GDP and slash debt support for state oil firm PEMEX by nearly 70% to $4.8 billion. These disciplined measures are keeping the Peso strong, but derivative traders must prepare for a potential breakout in the coming weeks.
Technical Outlook and Trade Ideas
Technically, the pair remains capped below heavy resistance at 17.21, while immediate downside support rests at 16.88. We see the upcoming US inflation data and the Federal Reserve’s policy meeting on September 15-16 as the ultimate catalysts to break this tight consolidation. A hotter-than-expected US consumer price index could quickly trigger a short-squeeze, pushing the pair back toward its key moving averages.
To capitalize on this setup, we recommend utilizing USD/MXN options to navigate the impending volatility. Buying near-the-money straddles will allow us to profit from a sharp breakout in either direction without having to guess the US inflation outcome. Alternatively, traders can look to buy call options if the pair successfully holds above the 16.88 floor, targeting a move back toward 17.21.
Historically, the wide interest rate differential between the Bank of Mexico and the US Federal Reserve has supported the Peso through carry trade flows. Currently, Banxico’s restrictive stance remains a powerful anchor for the currency, especially with Mexico’s August inflation print landing at a stable 3.26%. We should monitor the upcoming US economic data closely, as any hawkish Fed surprises could compress this yield gap and trigger a rapid Peso devaluation.
