The Mexican peso plunged on Monday, closing at 17.9445 units per dollar. According to official data from the Bank of Mexico (Banxico), the currency dropped 1.34% from Friday’s close of 17.7072—a loss of 23.73 centavos. The dollar reached a maximum of 17.9538 units, a level not seen since April, driven by a flight to the U.S. dollar amid global market volatility and escalating conflict in the Middle East.
Treasury yields and the DXY surge
The peso is struggling against a strengthening greenback. The U.S. Dollar Index (DXY), which tracks the dollar against six major currencies, rose 0.23% to 101.20 units.
Felipe Mendoza, a market analyst at EBC Financial Group, points to a hostile environment for the peso. He notes that the exchange rate is under pressure as the yield on the 10-year U.S. Treasury bond exceeds 5.25%, combined with significant volatility in commodity prices sparked by geopolitical tensions.
Oil spikes and Fed rate expectations
Energy markets are adding to the instability. WTI crude futures climbed more than 1%, surpassing $93 per barrel. The spike follows reports that U.S. President Donald Trump rejected an Iranian proposal to restore traffic through the Strait of Hormuz.
Higher oil prices are fueling inflation fears in the United States. This, in turn, raises expectations that the Federal Reserve will hike interest rates. According to CME’s FedWatch tool, there is currently a 70.03% probability of a rate increase in October.
The narrowing interest rate gap
The decline follows Banxico’s decision last week to hold its benchmark interest rate steady. By signaling it would not necessarily mirror the Federal Reserve, the Bank of Mexico has reduced the appeal of peso-denominated instruments often used in “carry trade” strategies.
The slide is part of a broader trend. After hitting a high of 16.8520 units per dollar in early September, the peso has shed approximately 6.48% of its value—a loss of one unit and nine centavos.
Eyes on U.S. payrolls and PCE data
Investors are now awaiting this week’s U.S. economic releases. The primary focus is on non-farm payroll figures and the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge.
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