FX.co ★ Mexican Peso Weakens to Nearly 1-Month Low

The Mexican peso weakened toward 17.35 per dollar, its lowest level in nearly a month, as a sharp escalation in Middle East tensions drove investors into safe-haven assets. A broad "risk-off" move followed coordinated US and Israeli strikes on Iran, boosting the US dollar and gold while pressuring emerging-market currencies.

Domestic factors further weighed on the peso. February data showed Mexico’s manufacturing sector remained in contraction for a sixth consecutive month, with the PMI at 47.1. Although business confidence improved slightly, firms continued to highlight concerns about potential US tariffs and subdued demand from the automotive industry.

Inflation dynamics also remain challenging. Headline inflation eased to 3.79% in January, but core inflation was still elevated at 4.52%. In response, Banxico kept its benchmark interest rate unchanged at 7% in February and indicated that inflation is now expected to return to its 3% target only by the second quarter of 2027. This diminishing yield advantage, set against a still-strong US dollar, continues to undermine support for the peso.