Mexican Peso rebounds as markets await tariff decision
- USD/MXN dips 0.41% to 20.41 ahead of key trade developments.
- Trump’s 25% tariffs on Mexico set to take effect Tuesday, pending final decision.
- Mexico’s business confidence deteriorates, manufacturing contracts for the eighth straight month.
- US economic data mixed with weak ISM PMI fueling growth concerns.
The Mexican Peso recovers some ground against the Greenback on Monday, a day before tariffs of 25% would be applied on Mexican goods imported to the United States (US) as President Donald Trump promised. However, the Peso rises as decent US economic data did little to offset projections that the economy might not grow in Q1 2025, according to the Atlanta Fed’s GDPNow model. The USD/MXN trades at 20.41, down 0.41%.
Over the weekend, the US Commerce Secretary said that tariffs on Mexico and Canada commence on Tuesday but that Trump would determine whether to stick to the planned 25% level. If tariffs proceed as projected, it could prompt traders to seek the security of the US Dollar (USD) and push the USD/MXN higher. Otherwise, the Peso could sustain a relief rally, and the pair could continue to edge lower.
Mexico’s economic data showed that business manufacturing activity contracted for the eight straight month, revealed S&P Global. At the same time, Business Confidence in February continued to witness a deterioration, revealed by the National Statistics Agency (INEGI), underscoring the gloomy economic outlook.
Banco de Mexico (Banxico) private economists’ poll was revealed, and analysts expect growth to remain below 1%, while inflation expectations remain unchanged.
Across the border, Manufacturing PMI data revealed by S&P Global and the Institute for Supply Management (ISM) was mixed. The former expanded compared to January’s figures, while the ISM dipped but remained in expansionary territory.
Daily digest market movers: Mexican Peso rises despite soft economic data
- Mexico’s Manufacturing PMI in February, according to S&P Global, contracted 47.6, down from 49.1. That was due to “demand conditions remaining on a downward path and cashflow pressures intensifying,” said Pollyanna de Lima, Economics Associate Director at S&P Global Market Intelligence.
- Business Confidence in Mexico fell 1.4 points, down from 51.5 to 50.1. Compared to last year, the index plunged 4.9 points, though the index has expanded for the last 25 straight months above the 50 threshold.
- Banxico’s poll showed that Gross Domestic Product (GDP) is expected at 0.81%, down from 1% for 2025. Headline inflation is predicted to end at 3.71%, down from 3.83%, and core Consumer Price Index (CPI) is estimated to end at 3.75%, up from 3.75%.
- Economists estimate the USD/MXN exchange rate to end 2025 at 20.85, down from 20.90, but for 2026 they eye a depreciation of the Peso far beyond the 21.30 figure expected in the January poll.
- The US ISM Manufacturing PMI showed that business activity in February remained steady at 50.3, down from 50.9 and below economists’ estimates of 50.5.
- S&P Global revealed that manufacturing activity in February increased by 52.7, up from 51.2 and exceeding forecasts of 51.6.
USD/MXN technical outlook: Mexican Peso climbs as USD/MXN drops below 20.50
The USD/MXN uptrend remains in place, though the exotic pair has consolidated within the 20.20–20.70 range for the latest 18 days, hinting that buyers are not committed to pushing spot prices higher. Short term, momentum is tilted to the downside as depicted by the Relative Strength Index (RSI) turning bearish.
For a bearish continuation, the USD/MXN must clear the 100-day Simple Moving Average (SMA) at 20.30. Once surpassed, the next stop would be the 20.00 figure ahead of the 200-day SMA at 19.50. On the other hand, if buyers push the exchange rate past 20.50, they must clear the latest peak seen at 20.71 on February 6, before testing the February 3 high at 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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