Quick overview

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The peso, which had already been declining since the open following stronger-than-expected U.S. producer inflation data, extended its losses in line with its regional peers.

The Mexican peso weakened against the dollar in midweek trading. The local currency, already under pressure from the start of the session, deepened its losses alongside other regional currencies as markets reacted to the Federal Reserve’s latest communication.

The exchange rate closed the session at 17.8265 per dollar. Compared to 17.6645 in the previous session, according to official data from the Bank of Mexico (Banxico), this represented a loss of 16.20 centavos, or 0.92%.

The dollar traded within a range between a high of 17.8774 and a low of 17.6019 pesos. Meanwhile, the U.S. Dollar Index (DXY), which measures the greenback against a basket of six currencies, rose 0.74% to 100.30 points.

The Fed announcement

In line with expectations, the Federal Reserve held its benchmark rate steady at 3.50%–3.75%. The central bank projected higher inflation and a stable unemployment rate, while maintaining its outlook for just one rate cut in 2026.

Market expectations have remained anchored since last week at a single 25-basis-point cut in the December 9 meeting, so the announcement was largely anticipated, said Jorge Adrián Calderón, a fixed income and interest rate derivatives trader.

However, Fed Chair Jerome Powell noted that the economic impact of the Middle East conflict remains uncertain. He added that economic activity continues to expand solidly, although job creation has been modest.

A stronger dollar

The dollar also strengthened after Powell signaled that a rate hike cannot be ruled out, even if it is not the base case. The currency had already been gaining since the open following stronger-than-expected U.S. producer price data and developments related to Iran.

The peso initially started the session on a positive note, but the exchange rate came under pressure as markets reacted to geopolitical headlines, particularly Iran’s statement identifying energy infrastructure as potential targets.

Earlier in the day, data showed that U.S. producer prices rose well above expectations in February, increasing 0.7% compared to forecasts of 0.3%, not yet reflecting the surge in oil prices driven by the Middle East conflict.