The Mexican peso continues its positive streak from last year in 2026, reaching its best level in a year and a half on this Wednesday, trading at 18.80 units per dollar. The session started with a slight advance of 0.05% compared to the previous close, but it touched a new low not seen since June 18, 2024, and has appreciated for three consecutive sessions. During her morning conference, Claudia Sheinbaum attributed this better performance to the performance of the Bank of Mexico (Banxico) and highlighted the work of its governor, Victoria RodrÃguez, following a series of interest rate cuts and a reduction in inflation from its most critical levels observed in 2022. However, according to analysts, the currency's advance has little to do with Banxico's strategy, which is expected to moderate the pace of interest rate cuts this year. While the interest rate differential between the Mexican central bank and the US one is still attractive to investors, it is actually the weakness of the dollar that explains the Mexican currency's appreciation. The peso surprised the market in 2025 with a historic appreciation of 13%. This week, a factor that markets have been following more closely is the escalation of Donald Trump's attack on the Federal Reserve (the Fed). Trump's conflict with its head, Jerome Powell, moved from disqualifications and criticisms of his management to an unprecedented legal conflict between the Executive and the US central bank, risking the Fed's credibility and autonomy. This came after the Department of Justice initiated an investigation into Powell after Trump accused him of lying to Congress about a substantial increase in the budget for renovating the Fed's central offices. It should be noted that the demand to review the Fed's performance, considering it is not meeting its objectives, was backed by Scott Bessent, in charge of US public finances, and Kevin Hassett, one of the favorites to replace Powell in the coming months. This action also generated an unusual response from Powell, who last Sunday stated that the threat of an investigation has nothing to do with the renewal of its offices, but with the fact that the Fed has not submitted its monetary policy decisions to the will of President Trump. The market is pricing in a more Trump-aligned Fed and deepens the dollar's fall. This unprecedented conflict in US history raises uncertainty about the central bank's future and increases the likelihood that monetary policy in that country will be more flexible, meaning more interest rate cuts are coming. This expectation is also reinforced by other economic data in the US, such as the behavior of core inflation and the unemployment rate near four-year highs.
