Market Analysis by Felipe Barragán, Expert Research Strategist at Pepperstone
– September 30, 2025 –
“The peso started the week taking its cue from Washington rather than Mexico City. As fiscal talks in the U.S. drift toward the Oct. 1 deadline, the dollar lost some altitude and global risk appetite steadied—gold ripped higher, Treasuries firmed, and the greenback broadly faded. That softer dollar tone, driven by shutdown worries and an increasingly data-constrained Fed, has been the main tailwind for MXN today. If a stopgap fails and key U.S. releases (like payrolls) are delayed, the information fog could extend the dollar’s wobble into October, reinforcing high-carry FX with credible policy like the peso.
Domestically, last week’s 25bp Banxico cut to 7.50% set a cautious easing tone but preserved the real-rate cushion that anchors MXN’s carry appeal. The split decision underscored discomfort with sticky core prices: mid-September headline inflation re-accelerated to 3.74% y/y and core to 4.26%—nudging the top of the target band and arguing for a measured path rather than an aggressive cutting cycle. In other words, the carry is narrowing, not collapsing, which still differentiates Mexico versus peers and helps the peso on days when the global dollar is soft.
The local macro tape isn’t flashing red. August unemployment printed a low 2.6% seasonally adjusted (2.9% unadjusted), consistent with a still-resilient labor market even as growth cools. That mix—resilient jobs, easing but sticky core inflation, and a central bank leaning gradual—keeps rate-cut expectations tempered and supports the notion that MXN’s yield premium will erode only slowly.
External currents will matter as much as ever over the next few sessions. If U.S. lawmakers clinch a funding deal quickly, the dollar could rebound and test MXN’s recent gains; a protracted standoff would likely do the opposite by pressuring the dollar and dampening U.S. yields. Oil’s downswing on resumed Kurdish flows and talk of more OPEC+ supply is a mixed bag—marginally softer terms of trade but also less pressure on global inflation and yields, both usually benign for carry trades. Positioning into the Fed’s late-October meeting (markets lean heavily toward another cut) adds a second layer: easier Fed and calmer yields tend to favor MXN, while any hawkish surprise or risk-off shock would expose the peso’s beta.
Bottom line: today’s peso strength is mostly a dollar story amplified by Mexico’s still-attractive (if slowly shrinking) real carry and a steady domestic backdrop. The near-term risk skew hinges on U.S. shutdown headlines and the path of yields; sustained dollar softness and contained rates would keep the wind at MXN’s back, whereas a swift budget resolution or a jump in U.S. yields would likely cap or reverse the move.
Keep an eye on the U.S. funding timeline, Banxico communications after last week’s cut, and the next inflation print for confirmation.”