Mexico Volatility Index

The Federal Reserve’s rate increase reduced the Mexico-U.S. rate differential to roughly 250 basis points, weakening the peso’s carry-trade appeal. Analysts warned that further Fed hikes or a Bank of Japan tightening cycle could increase volatility in the Mexican currency.

Experts said Banxico is unlikely to mirror the Fed because Mexico’s weaker economic activity limits domestic inflation pressure. They cautioned that sustained peso depreciation, higher currency volatility, wider risk premiums or capital outflows could eventually force a policy response.