US Dollar
Key events affecting currency markets in the first half of the year were the war with Iran, uncertainty at the US Federal Reserve, potentially higher US interest rates, a strong oil price, and inflation concerns in many countries. Of the currencies covered, the US dollar (DXY) stood out, appreciating 2.7% in 1H 2026. Higher oil prices, strong economic numbers like employment, and anticipation of the US Fed raising rates later this year drove demand for the US dollar.
Mexico
Versus the US dollar, the Mexican Peso stood out by appreciating 1.8%. First, Mexico's benefit from high oil prices was mixed; Mexico is an exporter, but exports have fallen from about 1.1 million barrels per day in 2020 to roughly 665,000 in 2025; their heavy Maya grade saw exports fall 86% from 2020. But in a time of high oil prices any country that exports got a boost. Second, falling inflation helped the peso appreciate in 1H 2026. After a spike up to 4.59% in March, the inflation rate came down to 3.94%, a level approximately equal to end 2025. Given the threats of the Iran war, Mexico did a good job on inflation and the currency was rewarded.
Mexico's currency appreciated versus the US dollar, magnifying the US dollar-based return of CETES. The average CETES yield in 1H 2026 was 8.8%, 4.5% greater than the US ten-year average of 4.32%. The yield picked up plus the currency gave dollar investors in CETES a good return.
Despite the appreciation of the Mexican peso versus the US dollar, exports were strong in 1H 2026, driving an improving trade surplus.
Mexico Risk
Unemployment has been ticking up; Mexico's unemployment rate increased to an eight-month high of 2.8% in May 2026. Deteriorating employment can lead to tough government decisions that cause inflation over time. Rising inflation in Mexico might put 1H 2026-peso gains at risk.
Moderating inflation, an improving trade surplus, and not too much exposure to oil exports positions Mexico well for 2H 2026. For US dollar investors, exposure to Mexican CETES is a good investment.
Key Data Points to Watch
- Unemployment cannot continue to rise
- Politics with the US regarding immigration and drug cartels
- Will inflation stay at around the sub-4% level
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