The Mexican peso closed the year trading at 18.01 pesos per dollar, showing an appreciation of 13.52%, or 2.82 pesos, making it the sixth best-performing currency in the broad basket of major currency pairs, after the Russian ruble (30.42%), the Hungarian forint (17.61%), the Swedish krona (16.73%), the Czech koruna (15.46%), and the Colombian peso (14.32%).
During 2025, the exchange rate averaged 19.2001 pesos per dollar, the highest average since 2022, due to upward pressure on the exchange rate during the first quarter.
However, it is worth noting that the peso’s annual appreciation of 13.52% is the largest since the exchange rate began floating on December 22, 1994. Other years with significant peso appreciation include:
2022 (+5.01%) due to the accumulation of speculative positions in favor of the Mexican peso and the Bank of Mexico’s restrictive monetary policy, which favored carry trade positions in favor of the Mexican peso.
2017 (+5.15%) due to the exchange rate correction in the first year of Donald Trump’s administration, after the peso depreciated sharply (20.45%) in 2016 amid fears that Trump’s arrival to the US presidency would end trade relations between the United States and Mexico.
2010 (+5.74%) when the Mexican peso was still recovering from the sharp 25.46% drop in 2008, due to the impact of the US financial crisis.
2012 (+7.77%) due to a correction following the 12.93% depreciation in 2011, when the crisis of high fiscal deficits erupted in Europe.
2023 (+12.96%) because the Bank of Mexico maintained a restrictive monetary policy, which allowed speculative positions in favor of the Mexican peso to continue accumulating. In 2023, the interest rate differential between Mexico and the United States reached a peak of 625 basis points, well above the 325 basis points at the end of 2025. With Japan, the interest rate differential reached 1,135 basis points, also well above the 625 basis points at the end of 2025. The wide interest rate differential fueled carry trade positions.
During the year, the exchange rate reached a high of 21.2932 pesos per dollar on February 3 and a low of 17.8816 pesos per dollar on December 26. The exchange rate reached its peak for the year when the Trump administration first announced tariffs on imports from Mexico, before agreements were reached with the Mexican government and commitments were made on migration, border security, and security cooperation. The announced tariff was 25%, based on the International Emergency Economic Powers Act (IEEPA), which, although announced in February, did not take effect until March. After reaching its peak for the year, the peso began a sustained appreciation due to the following factors:
The weakness of the dollar amid expectations of interest rate cuts by the Federal Reserve.
Carry trade positions that favored the peso, due to the wide interest rate differential between Mexico and advanced economies such as the United States and Japan, and the lower perceived risk for Mexico, as it became clear that Donald Trump would not withdraw from the USMCA and that Mexico was positioned as one of the countries least affected by the United States’ protectionist trade stance.
Toward the end of 2025, the Mexican peso also gained momentum due to the strengthening of silver in the commodities market. Silver accumulated a gain of 146.95% this year, its largest annual increase since 1979, reaching a record high of $84.01 per ounce. Mexico is the world’s leading silver producer, ranking first in production. According to the World Silver Survey 2025, prepared by The Silver Institute, Mexico produced 185.7 million ounces of silver in 2024, a 2% increase over the previous year, representing 22.65% of global production. This positions Mexico as the world’s largest silver producer, far ahead of other major producers such as China and Peru, which accounted for 13.43% and 13.18%, respectively. In December, the exchange rate and the price of silver showed an inverse correlation of 87%. It is worth noting that the increase in the price of silver benefits the Mexican economy if it translates into increased fixed investment or greater hiring. However, for that to happen, silver would have to continue rising at an accelerated pace in 2026.
Meanwhile, the dollar lost 8.04% this year according to the weighted index, its largest annual drop since 2017, due to: 1) lower demand for dollars from the BRICS bloc, 2) doubts about the Federal Reserve’s autonomy due to pressure from Donald Trump to cut interest rates, which also raised questions about whether the dollar would remain the international reserve currency in the long term, and 3) the Federal Reserve’s monetary policy, including interest rate cuts and liquidity injections.
The Mexican peso appreciated in: January (+0.72%), February (+0.61%), March (+0.39%), April (+4.18%), May (+0.91%), June (+3.55%), August (+1.16%), September (+1.84%), November (+1.37%), and December (+1.56%). Depreciations were only observed in July (-0.68%) and October (-1.30%). In all months, the Mexican peso moved in the opposite direction to the weighted dollar index. In July, Donald Trump began sending letters to countries specifying the tariffs their imports would pay in the United States, as the 90-day grace period for the implementation of the “reciprocal” tariffs announced in April had expired. Then, in October, Trump again threatened China with 100% tariffs on imports starting in November, in addition to the existing tariffs.
During 2025, the Mexican peso gained ground against the dollar largely due to carry trade, or carrying positions, as the Bank of Mexico called them in its December 2025 Financial Stability Report. Carry trade is an investment strategy in which investors take advantage of the wide interest rate differentials between different economies and imbalances in the foreign exchange market. These positions are leveraged, as investors borrow in one part of the world (generally at a low interest rate) and end up with a currency hedge to eliminate the risk of exchange rate movements that could erode the expected return. Carry trade is also known as a “small swap” because of the derivative involved in the currency hedge used to close the transaction.
Therefore, for investors seeking returns in carry trades, the following are important: 1) the overall risk level, 2) the interest rate differential between the country where the investment would be made and the country from which the loan was obtained, 3) the perceived risk of the country where the investment will be made, and 4) expectations of exchange rate movements in the currencies involved. Carry trade is incentivized by a wide interest rate differential and the expectation that the currency of the investment destination country will remain stable or appreciate, given a certain level of risk. Thus, the weakness of the dollar and Mexico’s position as one of the countries least affected by Donald Trump’s protectionist policies, along with a wide interest rate differential between Mexico and the United States and between Mexico and Japan, increased the incentives for carry trade, which benefited the peso.
At the close of 2025, the interest rate differential between Mexico and the United States stood at 325 basis points, down from 550 basis points at the beginning of the year. The interest rate differential between Mexico and Japan stood at 650 basis points, down from 975 basis points at the beginning of the year.
These carry trade operations were also reflected in the Chicago futures market, where net positions anticipating a peso appreciation reached a peak of 106,976 contracts on December 9, each worth 500,000 pesos, their highest level since June 11, 2024.
The perception of risk regarding Mexico could increase due to the scheduled review of the USMCA and the comments that rating agencies may make regarding Mexico’s debt level and fiscal deficit, given that the government has not achieved its fiscal consolidation targets.
In the first months of 2026, the Bank of Mexico could maintain its interest rate unchanged, as could the Bank of Japan. However, it is likely that the Bank of Mexico will resume interest rate cuts later on, and further rate hikes by the Bank of Japan cannot be ruled out. If the interest rate differential between the two countries continues to narrow, the attractiveness of the carry trade could diminish.
The door is open for the dollar to strengthen due to various factors, including a less flexible stance from the Federal Reserve (with the culmination of liquidity injections and pauses in the interest rate cut cycle) and greater global risk aversion.
Source: realstatemarket
