USD/MXN Outlook: Mexican Peso Shows Weakness Following Fed Decision

USD/MXN has appreciated by more than 0.5% in recent trading hours, favoring the U.S. dollar, shortly after the Federal Reserve’s policy decision was released. The bullish bias has been held, supported by the Fed’s hawkish tone, which has driven renewed demand for the dollar in the short term. Meanwhile, the Mexican peso has failed to withstand this pressure, losing ground and allowing a new wave of buying momentum in USD/MXN, which could persist over the coming sessions.

Impact of the Fed

In its most recent meeting, the Federal Reserve kept interest rates unchanged, holding them within the 4.25%–4.5% range, marking another consecutive decision without adjustments. Following the announcement, Fed Chair Jerome Powell emphasized that the central bank will not yield to political pressure, clearly referencing recent comments from the White House, and stated that, although inflation risks appear limited in the short term, a cautious approach will be needed for upcoming policy decisions.

The CME Group’s probability tracker currently shows a 91.7% chance that the rate will remain at 4.5% at the upcoming July 30 meeting, reinforcing expectations that the Fed will remain neutral yet firm in its stance.

Source: CMEGROUP

In contrast, Mexico’s benchmark interest rate remains at 8.5%, which is higher than the U.S. rate. However, Mexico is perceived as a higher-risk market, and Banxico has hinted at possible rate cuts in recent decisions. As a result, investors continue to favor the U.S. as a safer option, increasing demand for dollar-denominated assets, and strengthening the USD against the peso. If this divergence between the two central banks holds, buying pressure on USD/MXN is likely to persist.

What’s Happening With the Dollar?

The DXY index, which tracks the dollar’s strength against a basket of six major currencies, had been showing a sustained downtrend in recent weeks. However, following the Fed’s latest decision, the index has started to recover, moving back toward the 100-point mark, reflecting a renewed wave of confidence in the U.S. dollar.

Source: MarketWatch

This rebound has also been supported by progress in U.S.–China trade negotiations, contributing to macroeconomic stability perceptions. In this environment, the Mexican peso has started to weaken, and if the DXY continues its upward path, buying pressure on USD/MXN could intensify further in the short term.

USD/MXN Technical Outlook

Source: StoneX, Tradingview

Downtrend at Risk: The bearish trend that had dominated USD/MXN is now showing signs of exhaustion due to significant bullish corrections, which are beginning to challenge the structure. Price action has started to break through the descending trendline, and if buying pressure continues, it could signal the end of the bearish cycle and the beginning of a neutral or even bullish phase in the short term.
MACD: The MACD histogram is hovering around the zero line, indicating no clear dominant force. This setup suggests a technical transition phase, likely leading to sideways movement as the market awaits a stronger directional signal.

ADX: The ADX line has begun to rise above the 20 level, reflecting increased average volatility. This is a key factor that may support the emergence of stronger buying pressure if this trend continues in the sessions ahead.

Key Levels to Watch:

19.00 – Key Support: Represents the recent lows, where the price has found support against selling pressure. A break below this level would revive the previous downtrend.
19.42 – Nearby Barrier: A recent consolidation zone that aligns with the 50-period simple moving average. A sustained move toward this area could confirm the end of the current bearish trend.
20.00 – Critical Resistance: A psychological level and the most important resistance currently, also aligned with the 200-period moving average. If price reaches this level, it could trigger a bullish bias, marking the start of a long-term uptrend.

Written by Julian Pineda, CFA – Market Analyst

Follow him at: @julianpineda25

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