Mexican Peso Retreats as Banxico Cuts Rates, Dollar Gains 0.56%

The Mexican Peso weakened against the US dollar on May 15, 2025, following the Bank of Mexico’s (Banxico) expected interest rate cut. The USD/MXN closed at 19.4920, with the dollar gaining 0.56% after the peso had reached a seven-month high earlier in the week.

Banxico unanimously lowered its benchmark rate by 50 basis points to 8.50%, marking its seventh consecutive cut since last year. The central bank made this decision amid conflicting economic signals.

Mexico’s inflation ticked up to 3.93% in April from 3.80% in March, while Q1 GDP growth registered a meager 0.2% following a contraction in the previous quarter. By cutting rates further, Banxico has narrowed the interest rate differential with the US Federal Reserve.

This shrinking yield advantage has triggered capital outflows from Mexico, bolstering the dollar against the peso. The current 400-basis-point gap between Mexican and US rates continues to diminish, reducing the appeal of peso-denominated assets for yield-seeking investors.

Market volumes showed heightened activity, with significant repositioning occurring after the rate decision. The peso retreated from Tuesday’s rally, which had been fueled by softer-than-expected US inflation data.

April’s US Consumer Price Index had increased just 2.3% year-on-year, its lowest level since February 2021. Weak US economic data released Thursday added complexity to the market narrative.

US retail sales rose less than expected while the Producer Price Index declined, suggesting slowing inflationary pressures in the world’s largest economy. These figures raised concerns about potential US economic deceleration, which carries systemic risks for Mexico’s export-dependent economy.

From a technical perspective, USD/MXN has paused its downtrend that began in April. The pair broke above short-term resistance at 19.40 but remains below the critical 78.6% Fibonacci retracement level at 19.57.

The Relative Strength Index has moved away from oversold territory, currently sitting at 37.14. The chart shows price action below the 50-day moving average but above the rising 200-day moving average near 20.10.

This level could provide resistance during any potential rebounds. The Ichimoku Cloud indicates a neutral-to-bullish bias, while Bollinger Bands have narrowed, suggesting an impending volatility spike.

Support levels now stand at the October lows around 19.11-19.00, while immediate resistance appears at 19.57. Societe Generale analysts note that USD/MXN has formed a “rounding top” pattern, signaling potential further downside toward these support zones.

Traders remain focused on US-Mexico trade relations amid ongoing USMCA review discussions. Mexico’s Economy Minister recently proposed an early review of the agreement to reassure investors and preserve the framework underpinning North American trade.

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