Insights 
VT 
The Mexican Peso continues to gain against the US Dollar, trading 0.33% lower at 19.36. This comes as markets react to softer US CPI data, suggesting easing inflation and potential interest rate cuts by the Federal Reserve.
US April CPI report, below expectations, reinforces confidence in a rate cut by the Fed by September. Commentary from Fed officials remains important, with Vice Chair Jefferson and President Daly offering limited response to recent inflation data.
Monetary Policy Outlook
Fed Chair Jerome Powell’s remarks are anticipated on Thursday; any policy shift could influence the US Dollar’s direction. Meanwhile, the Bank of Mexico is expected to cut rates by 50 basis points to 8.5%, marking a continuous easing trend.
The narrowing interest rate differential affects the Peso’s yield advantage over the Dollar. Mexico faces economic pressure from US trade tariffs, disrupting growth amid rising US-Mexico tensions.
The USD/MXN extends its decline, falling below previous support levels. A bearish breakout emerges, with the Peso reaching its strongest level since October. The RSI suggests further possibilities for Peso’s gains if the US Dollar does not recover.
We’re seeing the Mexican Peso holding firm, climbing steadily against the US Dollar and breaking below key support levels—down at 19.36. That’s not a coincidence. Weaker-than-anticipated US CPI data this month turned heads. Inflation is cooling faster than some expected, and markets have responded by inching closer to the belief that the Federal Reserve may have to ease policy, perhaps even before the third quarter wraps up.
The inflation figures released confirm what we suspected—price pressures in the US aren’t sticking in the way they have been. With headline and core inflation both drifting lower, confidence grows among traders speculating on rate adjustments. Now, while various officials like Vice Chair Jefferson and Daly haven’t given firm opinions, they also haven’t dismissed the idea that easing is on the table. Their limited commentary has left room for those trading on interest rate expectations to fill the gaps with dovish assumptions.
Attention will now turn squarely to Powell. He’s expected to speak Thursday, and while it’s unlikely he’ll spell out the exact timing of a rate cut, traders will slice apart every sentence for clues. If there’s even the faintest signalling that policy may tilt to accommodate weaker inflation, those holding long USD positions against higher-yielding currencies might have to adjust rather quickly.
Mexican Peso Strength
On the other side of the equation, Mexico’s central bank appears ready to reduce rates again—potentially by 50 basis points, which would take the benchmark to 8.5%. That’s down from earlier highs and in line with earlier guidance that easing would be gradual. The timing puts pressure on traders watching the rate differential between the Peso and Dollar; as the gap narrows, Mexico’s carry advantage starts to erode. Yet even with this expected cut, the Peso has kept its strength. That says something about relative expectations.
Part of the Peso’s resilience seems to be technical. USD/MXN has broken below key price areas that once held as support. That breach introduces the possibility of further downside in the pair, particularly as sentiment cools on the Dollar. We’re now seeing levels last hit in October, and the RSI—useful when it’s not overbought—suggests momentum remains with the Peso. It’s not overextended yet.
Trade dynamics can’t be ignored here. Rising US-Mexico tensions, particularly with tariff rhetoric creeping back into the discussion, have introduced economic headwinds. They haven’t derailed the Peso, but there’s a cautionary undertone in capital markets. Any disruption in trade flows could weigh on Mexico’s production-heavy economy down the line. That’s something to keep an eye on, particularly for those with longer-horizon positioning.
For now, the macro backdrop tells us that downside pressure on the Dollar remains, and risk-on sentiment may persist if rate cut probabilities firm up. Adjustments in positioning could continue as we await Powell’s words. Until then, pressure on short USD trades seems limited, and extension targets to the downside for USD/MXN could be tested again if technicals align with further dovish hints.
