The Mexican peso rebounded toward 17.8 per US dollar as a broad retreat in the US dollar and growing expectations of a Middle East ceasefire restored appetite for riskier assets. While the currency faced pressure last month amid a weakening carry trade and safe-haven demand, it has rebounded as the greenback lost ground on signals of a potential de-escalation.
President Donald Trump suggested the conflict with Iran could conclude within weeks and indicated a willingness for the US to step back from direct involvement which reduced the urgency for safety in the greenback. Despite this recovery the peso remains sensitive to narrowing interest rate differentials after Banco de México recently cut its rate to 6.75% while the Federal Reserve maintains a stable stance. Although high domestic rates previously supported the currency, investors are now weighing the impact of policy divergence and the risk that any failure to confirm a regional resolution could quickly restore dollar strength.
