Market Snapshot: The superpeso stumbles

The peso is suddenly facing serious headwinds

For much of this year, the “superpeso” lived up to its reputation. In late August, the exchange rate hit a two-year peak, and President Claudia Sheinbaum hailed it as one of the “strongest and most solid currencies in the world”.

Seven weeks later, the mood has soured. The peso has fallen for six consecutive weeks, its longest losing streak since 2019, and is trading near a one-year low even as the dollar beats a hasty retreat from recent highs. That underperformance could persist in the near term, with the currency sliding further toward year-end before eventually staging a recovery.

Mexico’s fundamentals haven’t collapsed

Forecasters are mildly optimistic. The economy is recovering, if slowly and unevenly, as the labour market holds up, incomes rise, firms grow more confident and public investment picks up. Private-sector economists expect growth to accelerate to about 1.9% in 2027, from 1.5% this year.

Exports have surged as America’s data-centre frenzy has turned Mexico into a major supplier of artificial-intelligence hardware. In the first eight months of the year, the country sold $549bn of goods abroad, 29% more than a year earlier. Server shipments jumped 179%, overtaking vehicles by value for the first time. According to the Mexican Association of Private Industrial Parks, almost 100 new industrial parks are under construction, laying the groundwork for thousands of trade-focused manufacturing and logistics facilities.

Foreign investors are staying put. New foreign direct investment fell to $2.7bn in the first half of the year from $3.5bn a year earlier, but companies reinvested $32.2bn over the same period, underlining a degree of confidence in long-term growth prospects.

Remittances are hardly roaring, but they have stopped falling. Last year they suffered their first annual drop since 2013; in the first eight months of this year they rose 2.2%, helping to bolster consumer spending.

Price pressures remain elevated. Headline consumer price inflation rose to 3.62% in the year to the first half of October and core inflation to 3.78%. Both are within the central bank’s 2–4% tolerance band but well above its 3% target, pushed up by energy costs, tariffs, imported food, and wage increases.

But relations with the US may be shakier than they appear

An unusually warm connection between Donald Trump and Claudia Sheinbaum has helped buoy expectations for Mexico’s growth, shielding the economy from the uncertainty that has afflicted many other US trading partners.

This edge looks likely to erode. Trade talks between the two countries have reportedly stalled over Commerce Secretary Howard Lutnick’s insistence on maintaining national security tariffs on steel and aluminium, risking a falling-out like the one that derailed similar negotiations with Canada earlier in the year. A resolution looks increasingly unlikely before America’s midterm elections in early November, and after the vote, congressional Democrats could complicate matters further by pushing for stricter rules of origin and tougher labour standards.

Mexico’s newfound reliance on the AI build-out could also prove a vulnerability. Rapid growth in exports of computer hardware has been matched by a surge in imports in the same categories, suggesting that domestic firms are adding relatively little value in the supply chain, and leaving the country exposed to American charges of transshipment. In September, the Wall Street Journal reported that Washington had proposed capping the share of non-North American components in chips and servers made in Mexico, and it reasonable to think this could become a bigger sticking point over time.

The currency’s carry profile has deteriorated

In September, the Bank of Mexico held its policy rate at 6.5% for a third consecutive meeting and dropped a pledge to keep the rate “at its current level”, saying instead that future decisions would depend on “the ongoing disinflation process and the expected behaviour of its determinants”. It stressed that Mexico and the United States are at different stages of the economic cycle – reducing the need to react “mechanically” to rate increases from the Federal Reserve – and board members in the meeting minutes went further, with three of five suggesting that cuts could be put back on the table if price growth subsides.

The Fed is moving the other way. In September it raised rates by a quarter point, its first increase since 2023, and is expected to deliver another in December, followed by two more next year. The gap between Banxico’s rate and the Fed’s has tightened to 250 basis points, the narrowest in almost two decades, and looks set to shrink further, leaving the peso with its thinnest carry cushion in years.

Rivals are offering more. With policy rates far higher, carry trades in both the Colombian peso and the Brazilian real are outperforming Mexico’s on a volatility-adjusted basis, helped by expectations of a political shift to the right. Colombia has already made that turn, with Abelardo de la Espriella taking office in August. In Brazil, where Flávio Bolsonaro is entering the weekend’s run-off election as the favourite, capital that fled earlier in the year is flowing back. In both cases, flows that might otherwise be directed toward Mexico are being peeled off.

Turbulence is ahead

Against this backdrop, the peso’s trajectory looks unusually uncertain. Probabilities derived from options prices suggest the dollar-peso exchange rate could plausibly finish 2026 anywhere between 17.70 and 19.90 pesos to the dollar, and between 16.50 and 22.00 by the end of next year.

Downward pressure could intensify in the coming weeks as investors respond to hawkish messaging from the Fed, seek safety amid waning enthusiasm for the AI boom, and cut exposure to countries embroiled in trade disputes with the US. A break of the 19.00 threshold is possible before year-end mean reversion brings the exchange rate back to 18.50.

Early next year, however, a trade deal, albeit on tougher terms than now envisioned, should shrink the structural risk discount embedded in Mexican assets and help support foreign investment. A slower but still robust AI buildout should lift exports. Easing inflation in America could also temper expectations of further tightening north of the Rio Grande, encouraging a resumption of carry trades. And if the new governments in Colombia and Brazil face fiscal reality checks after their elections, flows could be diverted toward the peso. We therefore expect the exchange rate to strengthen toward 17.75 by the end of 2027.

Risks run both ways: An early trade breakthrough or a dovish turn at the Fed would bring the recovery forward, while formal American charges of transshipment, rate cuts from Banxico or an implosion in global technology-sector share valuations could push the peso toward the weak end of its range.

Mexico’s currency is losing its supports

Taken together, the troubles of the “superpeso” say less about Mexico’s economy than about how much of its strength rested on temporary factors. It stood on three pillars: a wide interest-rate buffer, America’s appetite for servers, and a cordial relationship with a notoriously fickle White House. The first is already being withdrawn as the Fed tightens and Banxico muses about cuts. The second depends on a boom that may cool and on rules of origin that Washington wants to rewrite. The third will be tested once the midterms are out of the way.

None of this spells crisis. The economy is still growing, if slowly; foreign companies are still reinvesting, new manufacturing infrastructure is under construction, and exporters are thriving. But the currency’s fortunes now hinge less on decisions taken in Mexico City than on those taken at the Fed, in Congress, in the Oval Office, and across wider financial markets. In August, President Sheinbaum called the peso one of the world’s most solid currencies. For now, that solidity is largely in other people’s hands.

Quick programming note: after many years of writing a note every morning, I’m testing a new format. In place of the 'morning market brief', you’ll receive ‘wires’ , sent around data releases and breaking news, along with a weekly look-ahead on Saturday mornings, and regular ‘snapshot’ forecast updates (like this one) for individual currencies. Foreign exchange markets don’t move on a schedule, and the analysis shouldn’t either. I hope you’ll find this approach more useful, and welcome your feedback. Reach out any time with comments, thoughts, or ideas: karl.schamotta@corpay.com