Mexican Peso holds firm as inflation cools, fiscal plan lands

The Mexican Peso clings to gains against the US Dollar on Wednesday following the presentation of Mexicos government fiscal package in Congress, while traders await the release of US inflation data. The USD/MXN trades at 16.89, down 0.09% near yearly lows.

For 2027, Mexico‘s budget projects a narrower deficit and also shrinks support for Petroleos Mexicanos (PEMEX), the nation’s Oil and gas company, which is expected to register a surplus, according to Mexicos Ministry of Finance.

The package estimates that the 2027 deficit will contract to 3.9% of GDP. The Finance Ministry estimates this year's deficit at 4.1% of GDP.

Regarding PEMEX, the Mexican government under President Claudia Sheinbaum is seeking to reduce its support for debt payments to about $4.8 billion in US dollars, down by almost 70% from the current year's allocation.

Mexico‘s government fiscal proposal projects economic growth to be between 1% to 2%, and it forecasts a primary fiscal surplus of 0.6% of GDP next year, excluding debt payments. Now the debate for the 2027 budget is set to begin in Congress, where Sheinbaum’s ruling party, Morena, is expected to approve the bill and make amendments.

Aside from this, Mexico‘s National Statistics Agency unveiled the annual inflation report for August, which rose to 3.26%, below the 3.30% estimate and up from July’s 3.12%. Core inflation accelerated to 3.88% from a year ago, below forecasts of 3.92% and above the Bank of Mexico (Banxico) 3% plus or minus 1% goal.

In the US, the economic docket features the ADP Employment Change 4-week average, which exceeded the previous print but was ignored by investors, who are keenly focused on US inflation data yet to be released. In the next couple of days, the US Bureau of Labour Statistics (BLS) will reveal the PPI and the CPI for August.

A red-hot US inflation report can set the stage for a recovery in USD/MXN, which is so far trading near two-year lows, beneath the 17.00 figure. Hence, a jump in prices could prompt the Fed to increase rates at the September 15-16 meeting.

In the daily chart, USD/MXN trades at 16.9044, keeping a bearish near-term tone as it holds below the triple simple moving average cluster (50, 100 and 200-day) now aligned around 17.2154 as overhead resistance. Price action remains capped beneath the broader set of descending resistance trend lines drawn from the 21.0808 and 18.1651 highs, while the Relative Strength Index (14) at 34.12 stays in neutral-to-soft territory, hinting that selling pressure is still present but not yet extreme.

On the downside, immediate support is seen at the horizontal level near 16.8866, where recent price action has started to consolidate. As long as USD/MXN trades under the 17.2154 daily simple moving average cluster, rallies are likely to be limited by that resistance zone, and only a sustained break above it would ease the current bearish bias and open the door for a more constructive recovery phase.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country‘s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexicos central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

Author

Christian Borjon Valencia

FXStreet

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.