Mexican Peso Strengthens on Persistent Dollar Weakness
The peso’s advance came as the dollar weakened further, with the odds of a Fed rate cut on December 10 climbing to over 80%.
Quick overview
- The Mexican peso strengthened against the dollar, closing at 18.3435 per dollar amid rising expectations for a third consecutive interest-rate cut by the U.S. Federal Reserve.
- Traders are pricing an 85% probability of a 25-basis-point reduction at the Fed's upcoming meeting, significantly up from last week's low of 24.6%.
- Banxico revised its 2025 GDP growth forecast down to 0.3% due to a sharper-than-expected contraction in third-quarter activity.
- The Fed's Beige Book indicated little change in U.S. economic activity, with employment weakening in nearly half of the Fed's districts.
The peso strengthened as traders ramped up bets on a third consecutive interest-rate cut by the U.S. Federal Reserve at its meeting next month.
The Mexican peso appreciated against the dollar in mid-week trading, supported by persistent expectations that the Fed will deliver another rate cut. The currency closed at 18.3435 per dollar, improving from Tuesday’s 18.3832, according to official data from Banco de México (Banxico). The move represented a gain of 3.97 centavos, or 0.22%.
During the session, the exchange rate fluctuated between a high of 18.4115 and a low of 18.3344. The U.S. Dollar Index (DXY)—which measures the greenback against six major currencies—fell 0.24% to 99.57 points. The peso’s advance came as the dollar weakened further, with the odds of a Fed rate cut on December 10 climbing to over 80%, far above last week’s low of 24.6%.
Rate-cut bets build
Traders have increased their wagers on another Fed cut next month. According to CME’s FedWatch tool, which tracks federal funds futures, markets are pricing an 85% probability of a third straight 25-basis-point reduction.
In the U.S., weekly jobless claims data showed a decline of 6,000 to a seasonally adjusted 216,000, indicating moderate levels of layoffs.
Meanwhile, the Fed’s Beige Book reported that overall U.S. economic activity changed little in recent weeks. Employment weakened in nearly half of the Fed’s 12 districts, and consumer spending slowed.
With the record 43-day U.S. government shutdown delaying key economic data, the Beige Book is expected to play a larger-than-usual role in the Fed’s upcoming deliberations—potentially nudging policymakers toward another rate cut.
After delayed data releases and comments from several Fed officials, traders see the December adjustment as increasingly likely, though the outlook for the months ahead remains uncertain.
Banxico revises expectations
On the domestic front, Banxico’s Quarterly Report showed a downgrade in its 2025 GDP growth forecast to 0.3% from 0.6%. The central bank also lowered its year-end inflation projection to 3.5% from 3.7%.
Banxico had raised its growth outlook in its previous report, but the new downgrade reflects a sharper-than-expected contraction in third-quarter activity, signaling greater economic weakness than anticipated.
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