Mexican Peso surges as rumors swirl over tariff rollback
- Mexican Peso rebounds 0.92% after hitting a four-week high at 20.99
- Trump administration reportedly considering a one-month tariff delay for automakers.
- Mexico’s economy weakens, with Banxico’s GDP forecast cut to 0.81%.
- Goldman Sachs warns Mexico’s GDP could shrink by up to 4% if tariffs remain.
The Mexican Peso (MXN) is recovering some ground against the US Dollar (USD) on Wednesday, on rumors that tariffs imposed by the United States (US) since March 4 could be rolled back or at least adjusted, according to US Commerce Secretary Howard Lutnick. Therefore, the USD/MXN pair retraced after hitting a four-week high of 20.99, trading at 20.38, down over 0.92%.
Bloomberg reported that the Trump administration could be considering another one-month delay of tariffs for automakers in Mexico and Canada, according to people familiar with the matter. The emerging market currency recovered after weakening 2.61% on Tuesday, clawed back, and is up 0.67% in the week, as USD/MXN tests the 100-day Simple Moving Average (SMA) at 20.32.
On Tuesday, 25% tariffs became effective for Mexican imports and sent the Peso plunging. Nevertheless, it seems discussions continued while Mexican President Claudia Sheinbaum said that retaliations will be unveiled on Sunday.
Meanwhile, data shows the Mexican economy continues to deteriorate as Gross Fixed Investment fell in December on monthly and yearly readings. Banco de Mexico’s (Banxico) private analysts' survey revealed that economists project the economy to grow 0.81%, down from a 1% estimate in January 2025.
According to El Financiero, Mexico’s economy is in the midst of a recession, and the Gross Domestic Product (GDP) could contract up to 4% if Trump’s tariffs remain.
Alberto Ramos, Chief Economist for Latin America at Goldman Sachs, stated that even in a scenario with a combined impact of trade policy uncertainty and partial retaliation, Mexico's GDP could shrink by 3% to 3.5%, and inflation could reaccelerate.
However, the Mexican Peso gained steam on Wednesday, a relief rally as traders await an update on tariffs on Mexico.
The Institute for Supply Management (ISM) Services PMI for February revealed that business activity improved. Meanwhile, US jobs data was dismal across the border, spurring fears of a possible recession.
Daily digest market movers: Mexican Peso rallies amid soft US Dollar
- Mexico’s Gross Fixed Investment in December dropped from 0.1% to -2.6% MoM. In the twelve months to December, the figures deteriorated further from -0.7% to -4%.
- Banco de Mexico's (Banxico) private economists' showed that headline inflation is forecast to end at 3.71%, slightly lower than the previous 3.83%, while core CPI is expected to finish at 3.75%, unchanged from the prior estimate.
- Economists now predict the USD/MXN pair exchange rate to close in 2025 at 20.85, slightly lower than the 20.90 projection in the previous survey. However, for 2026, they anticipate a sharper depreciation of the Peso, well beyond the 21.30 level expected in January’s poll.
- In the US, the ADP National Employment Change showed that private hiring rose by 77K, less than estimates of 140K and well below January’s outstanding 186K increase.
- The ISM Services PMI in February expanded by 53.5, above forecasts of 52.6, up from January’s 52.8.
- Hence, money market traders had priced in 81 basis points of easing in 2025, up from last week’s 70 bps, via data from the Chicago Board of Trade (CBOT).
- Trade disputes between the US and Mexico remain front and center. If countries could come to an agreement, it could pave the way for a recovery of the Mexican currency. Otherwise, further USD/MXN upside is seen, as US tariffs could trigger a recession in Mexico.
USD/MXN technical outlook: Mexican Peso surges as USD/MXN drops below 20.40
The Peso recovery has driven the USD/MXN pair towards the 100-day SMA, which if cleared, could pave the way for testing the 20.00 psychological barrier. Due to trade headlines suggesting a “possible” delay on tariffs, momentum shifted bearish as seen in the Relative Strength Index (RSI). That said, the path of least resistance near-term favors further appreciation for the Mexican currency.
The next support would be 20.00. If surpassed, the next demand zone would be the 200-day SMA at 19.54. Otherwise, if USD/MXN climbs past 20.50, it could exacerbate a rally towards the March 4 peak at 20.99. Up next lies the year-to-date (YTD) peak of 21.28.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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