Key facts
- Mexican peso fell 7.2% against the US dollar in four weeks.
- Peso hit 18.0070 pesos per dollar, its weakest level since March.
- Federal Reserve raised interest rates by 25 basis points to 3.75%-4%.
- Bank of Mexico held its rate at 6.5%.
High-yield currencies, including the Mexican peso, have faced headwinds as U.S. long-term yields pushed above 5%, spurring selling. The peso fell to 18 pesos per dollar, its weakest level since last March, marking an 1.8% depreciation from the previous close on Monday. This decline is attributed to the Federal Reserve's 25 basis point rate hike, which strengthened the dollar, while the Bank of Mexico maintained its rate at 6.5%. This narrower interest-rate differential reduces the appeal of the carry trade strategy. Analysts note that the peso's recent depreciation is not temporary but a result of reduced carry trade appeal, increased global risk aversion, a stronger dollar, and perceived risks around Mexico's structural problems.