Mitsubishi UFG Sees Further Gains in Mexico's Peso, Although Middle East Conflict Poses Risk

11:35 AM EST, 03/03/2026 (MT Newswires) -- In February, the Mexican peso (MXN) strengthened modestly further from 17.327 to 17.202, said Mitsubishi UFG,

Mexico's central bank (Banxico) at its meeting in February left the key policy rate unchanged at 7.00%. Banxico cut by a total of 300 basis points last year, with cuts on seven separate occasions.

The peso was the second-best-performing Latin American currency versus the U.S. dollar (USD) in 2025 and since the turn of the year, has been the third-best-performing with carry appeal continuing to provide underlying demand for the currency, noted the bank.

The prospect for continued attractive carry appeal was underlined by the Banxico policy meeting in February, when the key policy rate was left unchanged, stated MUFG. The central bank communicated a cautious message given upside inflation risks.

Banxico raised its inflation forecast for Q1 from 3.7% to 4.0%. The speed at which inflation falls back to the 3.0% level was also pushed back from Q3 2026 to Q2 2027. The higher inflation forecasts incorporated higher tariffs on imports from Asia introduced by Mexico under pressure from the United States Trump administration.

The risks to inflation had come down relative to before, but remain skewed to the upside, added the bank. There is scope for further easing, but hard evidence of inflation moving toward the target level would be required first.

Peso downside risks could stem from USMCA trade deal negotiations that lie ahead if renegotiation is the outcome of the scheduled meeting on July 1. The Trump administration has made clear in public comments that it intends to seek change or even possible exit the deal and seek separate bilateral deals with Mexico and Canada.

That could disrupt the positive peso momentum later in the year, especially if there is greater uncertainties in regard to global trade policies, it added.

In addition, a prolonged U.S.-Israel conflict with Iran would likely encourage the liquidation of profitable carry trades, which could also see MXN underperform, according to MUFG.

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