The Mexican ‘superpeso’ is over: Currency’s losses deepen to 18 pesos per dollar, its weakest level since last March

The Mexican peso is enduring a “black Monday.” The currency’s losses against the dollar deepened and fell to 18 pesos at the beginning of the week, its weakest level since last March. The strength of the U.S. dollar, uncertainty over the conflict in the Middle East and rising global interest rates have hit the currency, which after reaching 18 pesos per dollar closed the session at 17.95 pesos per dollar, according to Bank of Mexico data, representing a 1.8% depreciation from the previous close. The peso’s performance has been undermined by monetary policy decisions from the central banks of Mexico and the U.S. The Federal Reserve raised its interest rate by 25 basis points, placing it in a range between 3.75% and 4%, its first increase since July 2023. That decision strengthened the dollar, while the Bank of Mexico kept its rate at 6.5%. The issue matters because a narrower gap between the two rates reduces the appeal of the carry trade, a strategy that involves borrowing in countries with very low interest rates to invest in countries where rates are higher and yields greater.For the currency of Latin America’s second-largest economy, September has been a month to forget. So far this month the peso has accumulated a 5.9% depreciation against the dollar. After weeks of weakness, on Monday the exchange rate hit a high of 18.0070 pesos per dollar, returning to levels seen in 2025 when it closed at 18.0080 pesos per dollar. In addition to the effects of a narrower interest-rate differential, analysts say market nerves persist over geopolitical conflicts and their impact on energy prices and global inflation.Gabriela Siller, director of analysis at Banco Base, says the Mexican peso and the Colombian peso were the currencies that had benefited most from the carry trade, and are now the ones losing the most. “The carry trade depends on the interest-rate differential and also on how willing investors are to take on greater risk. Now the interest-rate differential between Mexico and the United States is 250 basis points, a historic low that was only previously recorded in December 2015. If the Fed raises its rate again in December and the Bank of Mexico holds its rate, that would create a new historical low in the differential. With all this, there is less incentive to engage in carry trade,” she said.Although the financial outlook is uncertain, bets for now favor the Federal Reserve raising its interest rate again. Meanwhile, the Bank of Mexico distanced itself from the Fed last week in its monetary policy decision. “Given that macroeconomic conditions in Mexico differ from those in the United States, monetary policy should not have to react mechanically to the adjustments expected in the federal funds rate,” the Mexican central bank said.Siller adds that the recent depreciation of the peso should not be seen as temporary but as the result of a reduced appeal of the carry trade, an increase in global risk aversion, a stronger dollar and greater perceived risk around Mexico due to its structural problems, among them a limited fiscal maneuvering margin and obstacles to private investment. According to her forecasts, the exchange rate at the close of 2026 will exceed 18.20 pesos per dollar.Grupo Financiero Monex says this week will be crucial to evaluate U.S. economic data as well as progress in diplomatic negotiations in the Middle East. “An environment of greater risk aversion will continue to push the local currency weaker. Given these factors, we believe the dollar against the peso will remain under upward pressure while awaiting any progress toward a possible resolution between Washington and Tehran, as well as U.S. macroeconomic data,” Monex concludes in its analysis.After months of strength, with rates below 17 pesos per dollar, the so-called Mexican “superpeso” faces a final uphill stretch to the year. The peso-dollar exchange rate will be shaped by the advance or setback of negotiations in the Middle East, as well as by the economic performance of Mexico and the United States.Sign up for our weekly newsletter to get more English-language news coverage from EL PAÍS USA Edition