Mexican Peso weakens on tariff fears
- Mexican Peso Under Pressure: Despite initial trade optimism fueled by Bessent, the Peso faces headwinds as markets grapple with escalating US tariffs on China.
- Banxico Rate Cut Anticipated: A Citi survey suggests Banxico is likely to cut rates by 50 bps in May, while also revising economic growth forecasts downwards.
- Market Focus: CPI and Inflation Data: Traders are keenly watching upcoming Mexico CPI and US inflation figures, with Fed minutes expected to further shape interest rate expectations.
The Mexican Peso extended its decline against the US dollar for a third consecutive day, even as market sentiment showed signs of improvement. This boost in sentiment followed comments from US Treasury Secretary Scott Bessent suggesting potential progress in trade deals with key partners. Currently, the USD/MXN exchange rate is trading at 20.72, a 0.25% increase.
While the global equity sell-off has taken a pause, the market isn’t completely out of the woods yet, despite the hopeful tone from Bessent. Adding to the complexity, news has emerged that the White House confirmed the implementation of 104% tariffs on Chinese goods, effective at 12:00 pm EST.
The Mexican Peso experienced a slight dip in response to these headlines, against a backdrop of a relatively quiet economic calendar. Now, USD/MXN traders are shifting their focus and eagerly awaiting the release of the Consumer Price Index (CPI) figures for March, with expectations of a slight increase.
According to the Citi Mexico Expectations Survey, a consensus is forming among economists for further monetary easing by Banco de Mexico (Banxico). The survey points to a likely 50 basis point (bps) rate cut in May. Furthermore, projections suggest the USD/MXN exchange rate will likely remain below 21.00, and economic growth is now expected to be weaker than previously anticipated in the last survey.
Turning our attention to the US, Chicago Fed Governor Austan Goolsbee recently commented that current tariff levels are significantly higher than what the Federal Reserve had previously factored into their models. Looking ahead on the data front, while today’s schedule is light, investors are keenly anticipating the release of the Federal Reserve’s latest meeting minutes, along with upcoming US CPI and PPI inflation data.
Market Movers – Daily Digest: Mexican Peso Weakens Amid Economic Slowdown Projections
- The Citi Mexico Expectations Survey indicates that Banxico is expected to gradually reduce interest rates to 8% by the end of 2025. Looking further ahead, rates are projected to decrease even further to 7% in the following year.
- The survey also projects the USD/MXN exchange rate to settle at 20.90. Inflation for 2025 is forecasted to average 3.80% for the year, with a slight increase from 3.66% to 3.7% expected by year-end.
- In terms of economic growth, Mexico’s Gross Domestic Product (GDP) is now anticipated to expand by just 0.3% in 2025, a downward revision from the 0.6% projected in the previous survey.
- Banxico Governor Victoria Rodríguez Ceja has affirmed that the central bank will remain vigilant regarding US trade policies and their potential effects on Mexico, emphasizing a primary focus on managing inflation.
USD/MXN Technical Analysis: Mexican Peso Remains Tentative as USD/MXN Climbs Above 20.70
The upward trend for USD/MXN continues as it broke through the convergence of the 50-day and 100-day Simple Moving Averages (SMAs) around the 20.34/36 level, sustaining the ongoing rally. Should this upward momentum persist, buyers may target the March 4 peak at 20.99, and potentially the year-to-date (YTD) high of 21.28 beyond that.
Conversely, should USD/MXN retreat below the 20.34 mark, the initial support level lies at the psychological barrier of 20.00. A break below this level could then open the door for a further decline towards the 200-day SMA at 19.80.
Mexican Peso FAQs
The Mexican Peso (MXN) holds the title of the most actively traded currency among its Latin American counterparts. A number of factors influence its value, most notably the health of the Mexican economy, the policies set by the country’s central bank, the influx of foreign investment, and even the volume of remittances sent by Mexicans working abroad, especially in the United States. Global geopolitical events also play a role. For instance, the trend of nearshoring – where companies are choosing to relocate production and supply chains closer to their home base – is considered a positive factor for the Peso, as Mexico is a major manufacturing hub in the Americas. Furthermore, oil prices are another significant driver for the MXN, given Mexico’s status as a key oil exporter.
The primary goal of Mexico’s central bank, Banco de Mexico (Banxico), is to keep inflation low and stable, ideally around its 3% target, which is the midpoint of a 2% to 4% tolerance range. To achieve this, Banxico adjusts interest rates as a key tool. When inflation rises too high, the bank typically responds by increasing interest rates. This makes borrowing more expensive for both consumers and businesses, which in turn helps to moderate demand and cool down the broader economy. Generally speaking, higher interest rates tend to be supportive of the Mexican Peso (MXN), as they boost yields, making Mexico a more appealing destination for investors. Conversely, reductions in interest rates usually exert downward pressure on the MXN.
Keep a close eye on macroeconomic data releases, as they are crucial for gauging the health of the Mexican economy and can significantly influence the value of the Mexican Peso (MXN). A robust Mexican economy, characterized by strong growth, low unemployment, and high levels of confidence, is generally favorable for the MXN. Such positive conditions not only attract greater foreign investment but may also prompt Banco de Mexico (Banxico) to raise interest rates, particularly if strong economic performance is accompanied by rising inflation. On the other hand, weaker-than-expected economic data tends to lead to a depreciation of the MXN.
Being an emerging market currency, the Mexican Peso (MXN) typically performs well during “risk-on” periods. These are times when investors feel that overall market risks are limited and are more willing to invest in assets that carry higher risk profiles. Conversely, the MXN often weakens during periods of market volatility or economic uncertainty, as investors tend to reduce their exposure to higher-risk assets and instead seek the safety of more stable, “safe-haven” investments.
