Market Analysis by Felipe Barragán, Expert Research Strategist at Pepperstone
– September 23, 2025 –
“The Mexican peso traded with a steady tone on Tuesday, balancing weak domestic signals against a somewhat more constructive global backdrop. The market’s attention remains centered on Banxico’s upcoming policy decision later this week, where most investors anticipate another 25 basis point rate cut that would bring the benchmark rate to 7.50%.
The easing cycle reflects the drag from subdued activity data and softening private demand, but also raises questions about whether Mexico can preserve the carry appeal that has supported the peso. Inflation is the key variable: while headline pressures have moderated, core inflation has proven stickier, prompting Banxico to lift its near-term projections. That has introduced an element of caution, as any upside surprise in inflation could slow the pace of cuts and, paradoxically, lend short-term support to the peso.
Fiscal policy is also coming under greater scrutiny. Analysts believe that without firmer consolidation efforts, Mexico’s debt trajectory could become a source of vulnerability. Authorities have pledged to narrow the budget deficit in the coming year, but investors remain wary given the scale of competing social and infrastructure spending commitments. These fiscal uncertainties layer onto recent trade policy moves, such as higher tariffs on autos from China and other non-USMCA countries. While framed as measures to protect domestic industry, such steps risk raising import costs and potentially complicating Banxico’s disinflation effort if they feed into consumer prices.
At the same time, external conditions provide an offsetting source of support. Mexico continues to benefit from resilient U.S. demand, which underpins exports even as domestic activity shows signs of fatigue. More broadly, expectations that the Federal Reserve will remain on an easing path have helped soften the dollar and maintain appetite for higher-yielding currencies. That dynamic has cushioned the peso against some of its local headwinds, though it leaves the exchange rate vulnerable to any abrupt change in Fed guidance or a renewed bout of dollar strength.
Taken together, the peso sits at the crossroads of easing domestic policy, fragile fiscal dynamics, and supportive global demand. The interplay of these forces will likely keep the currency sensitive to each new data point and policy signal. The critical question in the weeks ahead is whether Banxico can cut rates without unsettling inflation expectations, and whether the government can maintain enough fiscal credibility to keep investor confidence intact. Until those answers become clearer, the peso’s path will remain finely balanced between domestic fragilities and the broader pull of external conditions..”