USD/MXN Forecast: Mexican peso shows signs of weakness ahead of the Fed decision

The Mexican peso has started the week showing moderate weakness, reflected in recent USD/MXN price action, where the pair has posted a gain of more than 0.3% over the last two sessions in favor of the US dollar.

For now, the buying pressure that has begun to emerge is mainly driven by market expectations surrounding monetary policy decisions in both Mexico and the United States. These events have introduced a degree of uncertainty, limiting the peso’s ability to strengthen consistently.

In this context, if the Federal Reserve maintains a more restrictive tone or reinforces expectations of rate stability, this could continue to support the dollar and, in turn, intensify the upside pressure on USD/MXN in the coming sessions.

Central bank dynamics

On Mexico’s side, it is important to highlight that headline inflation for the first half of April came in at 4.53% year-over-year, showing a slight slowdown compared to the 4.55% recorded in March and in line with market expectations.

While this does not represent a structural decline in inflation, it does suggest a stabilization in price dynamics, reducing the urgency to maintain a highly restrictive monetary policy stance.

In fact, Banco de México has already begun a rate-cutting cycle, lowering rates from 7.00% to 6.75% in its latest decision. For the upcoming May 7 meeting, the base case points to a pause, although another cut toward the 6.50% level cannot be ruled out if inflation continues to stabilize.

This suggests that, rather than maintaining an aggressive stance, the central bank could shift toward a more flexible monetary policy in the coming months.

On the US side, the picture is different. The market has started to consolidate expectations of prolonged rate stability.

For the next decision (april 29), probabilities point almost entirely to the Federal Reserve keeping rates unchanged at 3.75%. More importantly, market projections suggest that this dynamic could extend well into 2027, with meaningful probabilities of no changes in the coming quarters.

Source: CMEGROUP

This reinforces the view that US monetary policy will remain restrictive for longer, limiting the scope for a sustained dollar depreciation in the short term.

At this point, the interest rate differential once again becomes a key factor. For much of 2025, this differential favored the Mexican peso, as it offered a higher relative yield. However, this dynamic may begin to shift for two main reasons:

First, if the Federal Reserve maintains a firm stance, the dollar could regain attractiveness, supported by expectations of stable rates in the coming months, which could renew interest in USD-denominated assets.

Second, if Banco de México continues to cut rates, the differential will narrow, potentially reducing the attractiveness of peso-denominated investments.

In both cases, the outcome could be a decline in demand for peso-denominated assets, opening the door for further dollar strength and more consistent upside pressure in USD/MXN.

 

Technical outlook for USD/MXN

Source: StoneX, Tradingview

• Major bearish channel under pressure: Although USD/MXN has maintained a bearish structure for several months, the recent price recovery has brought it closer to the upper boundary of the channel. This is a key area, as a sustained move higher could trigger a breakout that challenges the dominant bearish structure and opens the door to a shift toward a bullish bias in the short term.
   

• RSI: The RSI indicator remains slightly below the 50 level but has begun to show a consistent upward slope, suggesting that selling pressure is losing momentum in the short term. If this trend continues, the indicator could move into positive territory, reinforcing the case for a shift toward stronger buying momentum.
   

• MACD: The MACD supports this view, as the histogram has shown a steady recovery and is now close to the zero line. A move into positive territory would indicate a shift in market momentum, supporting a stronger bullish bias in short-term moving averages.

Key levels:

• 18.07 – Key resistance: A zone of recent highs aligned with the 200-period moving average and the 23.6% Fibonacci retracement level. This represents the most important resistance in the short term. A sustained break above it could confirm a structural shift and open the door to a more defined uptrend in the coming weeks.
   

• 17.56 – Current barrier: A level aligned with the descending trendline and the 50-period moving average. This is a critical area, as a clear break could invalidate the bearish structure and reinforce more consistent buying pressure in the short term.
   

• 17.10 – Key support: A zone of 2026 lows. A move back toward this level could restore bearish momentum and confirm the continuation of the descending channel, keeping the broader downtrend intact in the coming sessions.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25