The Mexican Peso (MXN) is weakening against the US Dollar (USD), with the USD/MXN pair trading at 20.51. This decline is attributed to rising US Treasury yields and trade tensions after President Trump announced a review of copper tariffs.

US Treasury Secretary Scott Bessent expressed concerns about the economy’s fragility, forecasting a possible deficit of $-3.8 billion for Mexico’s Balance of Trade in January. Additionally, Mexico’s unemployment rate is expected to rise from 2.4% to 2.7%, while core inflation increased slightly from 3.61% to 3.63%.

Trade policies continue to drive market sentiment, as Mexico’s Secretary of Commerce calls for improved US-Mexico trade discussions. As negotiations unfold, volatility in the USD/MXN pair may increase.

Technical analysis suggests that if USD/MXN exceeds the 50-day Simple Moving Average at 20.45, it could further climb toward 20.50. Conversely, failure to maintain this level may see the pair retreat to the 100-day SMA at 20.24.

Economic indicators and geopolitical developments remain pivotal for the peso, influencing its value and attractiveness to foreign investors.

The peso’s recent decline makes sense when considering the broader market forces at play. A stronger US dollar, fuelled by rising Treasury yields, pushes investors toward safer assets, weakening demand for emerging market currencies like the peso. The latest tariff review adds yet another layer of trade uncertainty, which markets never take lightly.

Scott’s cautious outlook on Mexico’s trade balance underlines underlying pressure on the peso. A projected deficit of $-3.8 billion suggests more imports than exports, which can weigh on the currency. An unemployment uptick from 2.4% to 2.7% does not seem huge on the surface, but even slight increases can shake investor confidence, especially when paired with stubborn core inflation. While the latest inflation data shows only a marginal rise from 3.61% to 3.63%, it hints that price pressures are not disappearing, which limits the central bank’s ability to cut rates.

Trade discussions remain highly relevant. As Mexico’s Secretary of Commerce pushes for better terms with the US, the peso’s direction will largely depend on how talks progress. Positive developments could help stabilise the currency, while delays or hostile rhetoric might fuel further volatility. With so many factors in motion, sharp price movements in USD/MXN should not come as a surprise.

On the technical front, the 50-day Simple Moving Average (SMA) at 20.45 is an important level to watch. If the pair manages to stay above this threshold, a move toward 20.50 becomes more plausible. However, should it struggle to hold, a retreat toward the 100-day SMA at 20.24 looks likely. These technical markers provide traders with reference points, guiding short-term expectations.

For those following the peso’s trajectory, both economic indicators and trade policies cannot be ignored. With external and internal pressures shaping sentiment, a cautious yet responsive approach will likely serve traders best.