FX.co ★ Mexican Peso at Strongest Level Since July 2024

The Mexican peso has appreciated to nearly 17.65 per US dollar, marking its highest level since July 2024. This boost is largely attributed to renewed interest from carry-trade investors attracted by Mexico’s still-high real interest rates. While the US dollar remains robust due to strong US economic data and a reduced likelihood of immediate Federal Reserve interest rate cuts, there has been an increased demand for pesos. Investors are favoring high-yield currencies, supported by Mexico's increasingly hawkish monetary policy. The Bank of Mexico (Banxico) has paused its rate-cutting cycle and maintained the policy rate at 7%, signaling caution in response to persistent core inflation. This move has preserved one of the most substantial real yield differentials in emerging markets, thereby continuing to draw investments into peso-denominated fixed income assets. Additionally, strong investor participation in a sovereign bond issuance totaling approximately $9 billion in early January has further reinforced these inflows. Expectations that Banxico will maintain restrictive monetary policies for an extended period have tightened local rate curves and decreased the need for hedging, enabling carry trade flows to counteract the strength of the dollar and support the peso’s progression.