- USDMXN recently reached a three-month low of 19.20 that reflects a pause in the USD long-term appreciation trend and improved risk sentiment across emerging markets. The tariff turmoil has taken a temporary pause—creating room for USD depreciation and improving the outlook for developed and EM currencies.
- Market narratives remain noisy, though, ranging from global risk repricing and U.S. data surprises to political headlines in Mexico. Yet, overall FX volatility remains subdued, which explains the return to carry strategies.
- Carry has once again supported the MXN, thanks to lower global volatility and a still-attractive interest rate differential. However, we think this support may weaken as volatility returns and Banxico continues easing.
- Fundamentally, domestic macro risks are skewed to the downside: persistent fiscal doubts, stagnant growth, and uncertainty around the 2026 USMCA review weigh on medium-term stability.
- USDMXN is now below fair value levels. When compared to other EMs, some macroeconomic models show that the MXN has scope to underperform other currencies.
- Relative to other risky assets, performance lags peers. Developed currencies and some EMFX have outperformed the MXN YTD despite Mexico's attractive carry—suggesting broader USD weakness, not MXN strength, is the main driver.
- From a technical perspective, the key support level stands at 19.20, with a break lower opening the door towards 19.0. On the upside, 19.50 remains the immediate resistance, followed by the 50-day moving average (~19.80) as a key indicator to watch.