Insights 
VT 
The Mexican Peso (MXN) is gaining ground against the US Dollar (USD), bolstered by a hotter-than-expected mid-May inflation reading. This has spurred reconsideration of the timeline for potential interest rate cuts by Banxico, increasing demand for the Peso and pushing USD/MXN below its 20-day Simple Moving Average (SMA), trading around 19.3096.
In the US, fiscal concerns are affecting the Dollar’s strength, with a weaker USD emerging amidst a credit rating downgrade and sentiment issues. Despite inflation aligning with the Federal Reserve’s 2% target, the “One Big Beautiful Bill” has raised budget deficit concerns, inadvertently increasing perceived credit risks.
Potential Bearish Pressure
USD/MXN may face further bearish pressure as it trades near 19.3096, with a potential dip below 19.30 suggesting deeper support levels. The Relative Strength Index (RSI) indicates potential further losses unless a recovery above 10-day and 20-day SMA levels at 19.46 occurs.
Interest rates significantly impact currencies, with higher rates strengthening a currency by attracting global investment. Rates also influence gold prices, as higher rates make non-interest-bearing assets less appealing. The Fed funds rate, set by the Federal Reserve, shapes market expectations and financial market behaviours.
The uptick in Mexican inflation for mid-May forced a rethink around the timing and likelihood of rate cuts by the central bank. This shift in expectation has made the Peso more attractive in recent sessions, drawing inflows from market participants looking to benefit from yields that are now anticipated to remain elevated for a while longer. As a result, we’ve seen the Peso firm up convincingly against the US Dollar, with the pair slipping below its 20-day Simple Moving Average — price-wise, that is sitting around the 19.31 mark.
Parallel to that, concerns out of Washington are weighing on the Greenback. While headline inflation figures in the US have offered minimal surprises, broader issues are bubbling under the surface. Most prominently, a downgrade to the US credit rating has sharpened nerves, with scrutiny now turning toward ballooning fiscal deficits. That particular bill marked as excessively large has triggered quiet but deepening concern on budget sustainability, which, in turn, has contributed to what many now see as growing credit risk. It’s a drag on the Dollar’s appeal, especially when safe-haven attributes become less reliable.
Technical Analysis of the Peso
Technically, the Peso bulls have the upper hand. Below 19.30, near-term pressure builds. There’s little in the way of obvious support until levels closer to 19.20, which traders may target if the current trend continues unchecked. We’ll note that the RSI still leans toward weakness in the pair, supporting the view that downside momentum could pick up unless something jolts the price back up past 19.46 — which aligns with the 10- and 20-SMA thresholds. Without a stabilisation above those levels soon, the risk is slanted lower.
Wider macro dynamics will continue to have a bearing. For one, interest rate differentials are pivotal for currency direction. When markets price in higher domestic rates — as is the case with Mexico currently — that can encourage capital inflows seeking yield advantages. It’s also a negative backdrop for metals like gold, since rising rates make those assets relatively less attractive due to their lack of yield. And in the US, the Fed funds rate remains the signal in the noise; it’s the reference point for financial markets globally. As expectations around central bank moves shift — with inflation, labour data, and politics all feeding into that narrative — it gives traders plenty to work with in short-term positioning.
