The Mexican Peso (MXN) weakened against the US Dollar (USD) on Friday, marking a weekly decline of over 0.59%. The USD/MXN rate is currently at 20.52, with pressures stemming from upcoming US trade policies including tariffs on Mexico.
Data released for Mexico revealed a Balance of Trade deficit of $4.55 billion in January, contrary to December’s surplus, while the Unemployment Rate increased to 2.7%. Traders are also processing US tariffs of 25% on Mexico and Canada set for next week.
The Core Personal Consumption Expenditures (PCE) Price Index in the US rose by 0.3% month-on-month, with annual inflation easing to 2.6%. Speculation suggests potential easing in Federal Reserve policy may occur by 58 basis points in 2025.
The Peso’s value is influenced by economic performance, foreign investment, and remittances, as well as geopolitical factors like nearshoring. Oil prices also play a significant role, given Mexico’s status as a major exporter.
Banxico aims to maintain stable inflation around 3%. Macroeconomic data releases are critical, impacting the Peso’s valuation. A strong economy encourages foreign investment and could prompt interest rate hikes, while weak data may lead to depreciation.
As an emerging-market currency, the Peso typically performs well during favourable market conditions but often struggles amid economic uncertainty.
The drop in the Peso against the Dollar last Friday did not go unnoticed, with the currency losing over half a percent over the course of the week. At 20.52 to the Dollar, the exchange rate reflects growing concerns, particularly surrounding forthcoming trade measures from the US. When such policy changes loom, traders must carefully assess their positions.
The latest trade data from Mexico came as an unpleasant surprise, revealing a deficit of $4.55 billion in January, a stark contrast to December’s surplus. This shift raises questions about broader economic stability. Add to this a rise in unemployment to 2.7%, and it is clear why some investors may be hesitant. Trade balances often dictate demand for a currency, and a sudden move from surplus to deficit can alter expectations rapidly.
North America’s trade framework is now under scrutiny, as fresh US tariffs are set to take effect next week. A 25% levy on Mexican and Canadian goods could reshape cross-border economics, with potential repercussions on Peso demand. Businesses dependent on exports will likely feel the pressure, and weaker sentiment towards Mexico’s trade prospects could weigh on the currency further.
On the US side, inflationary signals continue to provide mixed interpretations. The Core PCE Price Index climbed by 0.3% versus the previous month, but annualised inflation eased to 2.6%. Inflation trends in the US influence Federal Reserve decisions, and speculation has already surfaced about monetary policy relief in 2025, with estimates of a 58 basis point cut. If this outlook remains intact, the Dollar’s strength could wane over time. However, such shifts are rarely straightforward, meaning traders must remain flexible.
For the Peso, multiple factors come into play, ranging from Mexico’s economic health to foreign investment levels. Remittances remain a vital income source, while oil prices also factor in due to the country’s status as a key exporter. Price swings in commodities can quickly reshape demand for the Peso, creating volatility that traders must stay ahead of.
Banxico continues its commitment to inflation stability, aiming to anchor it near 3%. Monetary policy remains tightly linked to economic data, with strong performance potentially warranting higher interest rates, which might attract foreign investment. On the other hand, weak reports tend to have the opposite effect, weighing on the currency as investor confidence pulls back.
Being an emerging market currency, the Peso sees strong performance during periods of economic optimism. In more uncertain environments, however, it can falter, particularly when global risk appetite declines. Those actively involved in the markets should closely monitor upcoming trade adjustments and Fed rate expectations, as these will influence short-term price action.
