Mexican Peso appreciates as USD/MXN dives on USD weakness

The Mexican Peso appreciates by about 0.20% against the US Dollar, even as risk appetite deteriorated amid the escalation of the US-Iran conflict, which triggered a jump in energy prices. This exerted upward pressure on US bond yields on speculation that the Fed will raise rates. The USD/MXN trades at 16.99 after reaching a daily high of 17.04.

USD/MXN slips despite Iran escalation, Oil jump, Fed hike risks

Developments during the overnight session pushed West Texas Intermediate (WTI), the US Oil benchmark, past the $85.00 threshold, following strikes by the US and Iran. Sentiment soured on the news, but not in the FX space, with most traders punishing the Greenback, as per the US Dollar Index (DXY).

.The DXY, which measures the buck’s value against a basket of six currencies, is down 0.25%.

Last week, hawkish remarks by Fed Chair Kevin Warsh weakened the Mexican currency, as USD/MXN rose 0.38%, closing at 17.03 on Friday. This increased bets that the US central bank will raise rates by 25 basis points at the September 16 meeting, according to Prime Terminal data.

The odds stand near 65% for a hike, a complete U-turn ahead of Warsh’s speech. Traders' eyes are set on a busy economic docket in the US. During the week, the release of ISM Manufacturing and Services PMIs will provide an update on economic activity, while a tranche of US jobs data, led by Nonfarm Payrolls for August, could confirm whether the labour market remains solid.

In Mexico, developments surrounding the USMCA free trade agreement are crucial for the emerging-market currency, as talks are set to continue. Nevertheless, US President Donald Trump has remained reluctant to extend the free trade agreement, signed during his first administration.

In addition, Mexico's economic docket will feature the August Consumer Confidence on September 3.

USD/MXN Price Forecast: Technical outlook

In the daily chart, USD/MXN trades at 16.9994, keeping a bearish tone as spot holds beneath the medium-term descending trend line at 17.0838 and the clustered 50-, 100- and 200-day simple moving averages (SMA) around 17.3004. The failure to reclaim these overhead levels suggests the pair remains capped within a broader downtrend, while the Relative Strength Index (RSI) at 38.8 stays below the midline, hinting at persistent but not extreme selling pressure.

On the topside, initial resistance emerges at the medium-term downtrend line near 17.08, ahead of the broader SMA cluster around 17.30, which reinforces the prevailing bearish structure. A sustained move above these barriers would be needed to ease downside pressure, with the long-term descending trend line far higher near 18.12 marking a more distant cap on any recovery attempts.