Mexican Peso Declines Amid Expectations of Fewer Fed Rate Cuts

The Mexican peso fell against the U.S. dollar during midweek trading after the Federal Reserve’s anticipated monetary policy announcement revealed lower expectations for rate cuts in 2025.

The USD/MXN closed the session at 20.3720 pesos per dollar, compared to 20.2214 pesos the previous day, according to official data from the Bank of Mexico (Banxico). This represents a loss of 15.06 cents, equivalent to 0.75%. The dollar traded within a range, reaching a high of 20.4277 pesos and a low of 20.0718 pesos. Meanwhile, the U.S. Dollar Index (DXY), which tracks the greenback against six major currencies, rose 1.15%, hitting 108.19 units.

USD/MXN

The peso exhibited volatility throughout the session. It initially gained ground as traders anticipated the Fed’s interest rate cut, which materialized with a 25 basis point reduction, bringing rates to a range of 4.25%-4.50%.

However, the Fed’s updated projections, signaling a slower pace of monetary easing, pushed the dollar higher. The central bank now anticipates only two 25-basis-point rate cuts in 2025, down from the previously expected three adjustments.

Despite the rate cut, the Fed’s cautious statement and economic outlook injected uncertainty into the markets, suggesting a potentially longer path toward monetary normalization. This shift dampened the peso’s earlier momentum and drove investors toward the relatively stronger U.S. dollar.

FED Projections and Outlook

The projections indicate stronger economic growth for both this year and 2025, reflecting the resilience of the U.S. economy. However, this resilience could also intensify inflationary pressures, prompting a cautious market response.

The most significant focus was on the 2025 guidance, where, according to the Fed’s dot plot, a 50-basis-point rate cut is expected, alongside projected PCE inflation between 2.1% and 2.5%.

In response, the DXY index continued to climb, signaling renewed strength for the U.S. dollar.

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.