The Mexican peso appreciated against the dollar on Thursday as markets digested a 0.2% Q1 GDP expansion and a 4.22% annual inflation rate—above forecasts and Banxico’s target—raising questions about the central bank’s rate-cut cycle.
The Mexican peso gained ground against the U.S. dollar in Thursday morning trading, with the USD/MXN spot rate dipping to 19.36—down 0.05% from Wednesday’s close—as investors absorbed mixed domestic economic signals.
Data from Mexico’s national statistics agency (INEGI) showed that gross domestic product edged up 0.2% in the first quarter of 2025 compared with the previous quarter, narrowly avoiding a technical recession after a 0.6% contraction at the end of 2024. On an annual basis, output rose by 0.6% year-on-year, reflecting a modest rebound driven largely by strength in the primary (agricultural) sector.
At the same time, inflation surprised on the upside: the annual consumer price index jumped to 4.22% in the first half of May, exceeding analysts’ forecasts of 4.01% and pushing inflation beyond the Bank of Mexico’s 3% ±1% tolerance band. This rapid uptick marks the largest breach of the target range so far this year and was partly fueled by higher food and energy prices.
The inflation overshoot comes as Banxico has already cut its benchmark interest rate by 50 basis points to 8.50% on May 15—the third consecutive cut and the lowest level since August 2022—in an effort to support the flagging economy. With headline inflation now outside its preferred range, the central bank may pause further rate reductions to assess whether price pressures are temporary or more entrenched.
Market participants note that the peso’s resilience this week also reflects a modest pullback in the U.S. dollar amid speculation that the Federal Reserve could adopt a more dovish stance if U.S. growth data continue to soften. Looking ahead, traders will monitor upcoming U.S. economic releases and the Bank of Mexico’s June policy meeting for further clues on the currency’s path.
The peso’s performance highlights the fine line Mexican policymakers must tread between fostering a fragile economic recovery and containing inflationary risks—both of which will be key determinants of the currency’s outlook in the months to come.
The Mexican peso appreciated against the dollar on Thursday as markets digested a 0.2% Q1 GDP expansion and a 4.22% annual inflation rate—above forecasts and Banxico’s target—raising questions about the central bank’s rate-cut cycle.
