The appreciation window of the US dollar against the Mexican peso—Insights from US stock market divergence on the foreign exchange market

Since the start of 2026, the U.S. dollar has fallen into a difficult position. The two main pillars supporting the dollar—U.S. stocks and U.S. Treasuries—are both performing lacklusterly, and this weakness is triggering a chain reaction in the foreign exchange market. From an exchange rate perspective, the dollar’s depreciation trend is gradually becoming evident, providing opportunities for emerging market currencies to appreciate, with the USD/MXN exchange rate attracting particular market attention.

Weak U.S. Stocks: Growing Divergence Among Major Stocks

Since the beginning of the year, the Nasdaq index has gained less than 0.1%, appearing calm on the surface but with underlying currents of tension. Behind this sluggish growth lies a notable divergence. Market data shows that “Google Chain” stocks continue to rise, while “OpenAI Chain” stocks are declining, with the gap widening.

This divergence puts pressure on the overall U.S. stock market index. “OpenAI Chain” includes major stocks like Microsoft, Nvidia, and Oracle, whose declines directly drag down the overall index. This explains why, despite many components, the Nasdaq has struggled to achieve significant growth—internal structural declines are offsetting potential gains.

Intensified AI Competition: Business Model Battles Reflecting Market Divergence

At first glance, the divergence in stock prices seems simple, but fundamentally it reflects a battle over AI industry business models. Google’s Gemini 3 series models have gained widespread recognition overseas, with market consensus suggesting their technological capabilities have surpassed OpenAI’s GPT series. In contrast, OpenAI’s closed-source strategy and massive capital expenditures have raised market concerns, making Oracle the most volatile “wild stock.”

This competitive landscape signals an important message: the U.S. stock market in 2026 may not achieve a broad bull run. If “Google Chain” and “OpenAI Chain” represent divergence rather than shared prosperity, the U.S. stock market will struggle to generate unified upward momentum, and the rotation of major stocks will continue to suppress the index.

Emerging Markets’ Comeback: The Catalyst for Dollar Depreciation

Precisely because of the internal divergence within U.S. stocks, emerging markets are beginning to outperform U.S. stocks. Data shows that the MSCI U.S. Index has risen a total of 0.8% since the start of the year, while the MSCI Global Index (excluding the U.S.) has increased by 5.3%, with countries like Mexico and Brazil seeing gains exceeding 10%.

This contrast in stock performance directly influences the foreign exchange market. When emerging markets outperform U.S. stocks, capital flows shift from the U.S. to emerging economies, leading to a depreciation of the dollar and an appreciation of emerging market currencies. This aligns with the market concept of the “dollar smile curve being at its lower end”—at this position, the dollar continues to weaken, while high-yielding emerging market currencies become favored due to their yield advantages and capital appreciation potential.

USD Against Emerging Currencies: High Yields and Appreciation

In this cycle, high-yield currencies like the Brazilian real, Chilean peso, and Mexican peso have led gains. The USD/MXN exchange rate’s decline reflects this trend. For forex traders, this means not only dollar depreciation but also that the Mexican peso offers a double attraction: first, the interest rate advantage of Mexico as a high-yield country; second, the peso’s potential for appreciation as an emerging market currency.

This combination of dual benefits far exceeds the returns from simply holding dollars, explaining why capital is flowing from U.S. assets into emerging market currencies.

Outlook for the First Half of the Year: Continued Pressure on the Dollar

Looking at the overall pattern for the first half of the year, the dollar may see some short-term rebound supported by logical factors, but the overall trend is likely to remain weak. Unless major U.S. stock weightings can reverse the divergence and move upward together, the dollar’s support will continue to be under pressure. This dollar weakness provides opportunities for further depreciation of the USD against the MXN and for investors to position in emerging market currencies.

Key Takeaways:

1. U.S. stock divergence is the fundamental driver of dollar depreciation. The internal competition between “Google Chain” and “OpenAI Chain” stocks causes overall weakness in U.S. equities, prompting capital to flow into emerging markets, which in turn weakens the dollar.

2. Emerging market gains reinforce dollar weakness. When emerging markets outperform U.S. stocks, the USD against emerging currencies tends to weaken. The decline of USD/MXN exemplifies this pattern.

3. Dual benefits of high yields and appreciation attract capital. The Mexican peso not only benefits from high interest rates but also from potential appreciation, providing long-term support for dollar weakness against the peso.

4. The dollar will face continued pressure in the first half of the year. Unless there are significant changes in AI industry competition or a unified rise among major U.S. stocks, the dollar’s depreciation trend is unlikely to significantly reverse in the near term.