By Antonio Di Giacomo, Senior Market Analyst at XS.com
The Mexican peso faced a challenging session on November 21, posting significant losses and once again approaching the 18.50 per dollar level. The weakening of the local currency was driven by two key factors: the strength of the U.S. dollar in global markets and confirmation that Mexico’s economy contracted by 0.3% in the third quarter. This negative surprise raised concerns among investors, as it reflected a deeper-than-expected slowdown in economic activity.
The release of weak September IGAE data reinforced the perception of an ongoing economic deceleration in the country. With near-zero growth and signs of reduced momentum in services and manufacturing, several analysts believe these results could prompt a downward revision of Mexico’s 2025 growth forecasts. The recent deterioration also complicates Banxico’s outlook for monetary policy, as the central bank faces a more fragile economy amid persisting inflationary pressures.
The external environment did not help the peso either. The session was marked by increased risk aversion in Asia and Europe, amid disappointing Chinese data and a rebound in European market volatility. In such conditions, investors typically unwind positions in emerging assets, adding further pressure on the Mexican currency during early trading.
Another relevant factor was the yen’s rebound. The appreciation of the Asian currency intensified the unwinding of carry trade positions, particularly those involving the Mexican peso, one of the preferred assets due to its attractive yield.
These flows triggered a technical downside move in MXN, amplifying losses from weak domestic data.
In the United States, the dollar strengthened after a new labor report showed better-than-expected results. In September, 119,000 jobs were created, above forecasts, although the unemployment rate edged up to 4.4%. This contrast keeps the debate alive over the pace of labor-market cooling and its implications for Federal Reserve policy.
The dollar’s strength was also supported by renewed demand for safe-haven assets, driven by global uncertainty and expectations that the Fed will maintain a cautious stance amid mixed signals on inflation and employment. This backdrop boosted the greenback against most emerging currencies, including the Mexican peso.
If the exchange rate closes the week near current levels, the peso would depreciate by about 0.8%, interrupting the relative stability seen in previous weeks. The combination of weak domestic data, lower global risk appetite, and a stronger dollar points to a challenging end of the month for the Mexican currency, with additional risks if growth forecasts continue to be revised downward and international volatility increases.
In conclusion, the Mexican peso is under renewed pressure driven by domestic economic deterioration, an adverse global environment, and a stronger dollar amid solid U.S. labor data. Although a short-term technical rebound cannot be ruled out, the broader trend will depend on GDP performance, business confidence, and upcoming decisions from both the Fed and Banxico. For now, the balance of risks remains tilted toward a weaker MXN if signs of economic slowdown and global volatility persist.