The Mexican peso weakened to around 17.04 per US dollar, retreating from the more than two-year low of 16.91 reached on August 21, as a more restrictive policy tone from Fed Chair Warsh boosted the US currency. Warsh reaffirmed that the Fed is using the PCE index as its primary inflation gauge and adopted firmer rhetoric than earlier suggestions that a newly created task force might shift the central bank’s preferred measure. In response, rate futures moved to price in the possibility of a Fed rate hike next month, driving US Treasury yields higher and pressuring emerging-market currencies such as the peso. A potential Fed hike would narrow the US-Mexico interest rate differential and erode the relative attractiveness of Mexican assets. At the same time, the Bank of Mexico is expected to keep its benchmark rate at 6.5% in the near term, as inflationary risks from elevated energy prices are offset by signs of strengthening economic activity.