The Mexican peso weakened to around 17.04 per US dollar from the more than two-year low of 16.91 touched on August 21, as a more restrictive policy signal from Fed Chair Warsh supported the US dollar. Warsh said the Fed is tracking the PCE index as its inflation gauge, using firmer rhetoric than earlier suggestions that a newly created task force could shift the central bank’s preferred measure. Rate futures subsequently shifted toward pricing a potential Fed rate hike next month, pushing US Treasury yields higher and weighing on emerging-market currencies such as the peso. A Fed hike could narrow the US-Mexico rate differential and reduce the appeal of Mexican assets. Meanwhile, the Bank of Mexico is expected to keep its benchmark rate at 6.5% in the near term, as inflationary risks from elevated energy prices are balanced by signs of improving economic activity.