- The Mexican peso plummets almost 2% due to President-elect Trump’s harsh comments about tariffs.
- Mexican President Sheinbaum warns of retaliatory tariffs, stressing that American consumers could bear the brunt of the trade war.
- Banxico’s dovish stance and lower inflation expectations suggest further rate cuts, adding pressure to the Peso.
The Mexican peso collapsed against the dollar after US President-elect Donald Trump said on Monday that he threatened to impose 25% tariffs on Mexico. Trump blamed the country for not fighting drug cartels enough and allowing illegal immigrants into the US. USD/MXN is trading at 20.77 at the time of writing, gaining more than 2%.
Late on Monday, Trump’s comments lifted USD/MXN from around 20.29 to its daily high of 20.74 before retreating somewhat during the European session. However, at the start of the North American session, the Peso remained pressured as the exotic pair advanced towards the 20.70 area.
In response to Trump, Mexican President Claudia Sheinbaum said, “A [EE.UU.] tariff will be followed by another [de México]and so on until we put common businesses at risk.” He added, “The main victims will be American consumers” who buy cars made in Mexico.
Apart from this, Mexico’s economic agenda remains thin on Tuesday, but will include the publication of the latest minutes of the Bank of Mexico (Banxico) meeting. Banxico unanimously reduced rates by 25 basis points (bps) on November 14 to 10.25% as expected.
Last week, Banxico Governor Victoria RodrÃguez was dovish, hinting that the institution could seek to lower rates by more than 25 bps due to progress on disinflation. General inflation during the first two weeks of November fell from 4.68% to 4.56% year-on-year.
In the US, the economic agenda revealed that consumer confidence improved above estimates and the October reading. However, traders are awaiting the publication of the latest minutes of the Federal Reserve (Fed) meeting.
Later this week, the US economic docket will include durable goods orders, initial jobless claims and the Fed’s preferred inflation gauge, the Personal Consumption Expenditure (PCE) Price Index.
Daily Market Summary: Mexican Peso on Defensive Amid Thin Agenda
- Mexico’s Chamber of Deputies, after approving the dissolution of autonomous bodies, proposed adjustments to the details of a controversial reform that abolished several regulatory bodies to ensure compliance with the T-MEC trade agreement.
- “The fact that MORENA is taking a more cautious approach with two of the most important regulators, antitrust and telecommunications, is a positive sign,” said Rodolfo Ramos of Brazilian bank Bradesco BBI.
- The Conference Board’s consumer confidence for November expanded to 111.7 from 109.6, beating estimates of 111.3.
- The CME’s FedWatch tool suggests investors see a 59% chance of a 25 basis point rate cut at the US central bank’s December meeting, up from 52% a day earlier.
- Data from the Chicago Board of Trade, via the December federal funds rate futures contract, shows that investors estimate a 22 bps reduction by the Fed by the end of 2024.
USD/MXN Technical Outlook: Mexican Peso Plunges as USD/MXN Rises Above 20.70
USD/MXN remains biased higher and is approaching the current day’s peak of 20.76 on Trump’s comments. A clear breakout will expose the yearly high (YTD) of 20.80, followed by the psychological mark of 21.00. If surpassed, the exchange rate would test the March 8, 2022 peak at 21.46, followed by the November 26, 2021 high at 22.15.
Conversely, if sellers clear 20.50, they would target the previous yearly peak of 20.22. Once surpassed, the next target would be the 20.00 mark, followed by the November 7 low and the 50-day SMA around 19.75/86.
The Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is largely determined by the performance of the Mexican economy, the policy of the country’s central bank, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans living abroad, particularly in the United States. . Geopolitical trends can also affect the MXN: for example, the nearshoring process (or the decision by some companies to relocate manufacturing capacity and supply chains closer to their home countries) is also seen as a catalyst for the currency. Mexican, as the country is considered a key manufacturing center on the American continent. Another catalyst for the MXN is oil prices, as Mexico is a key exporter of the raw material.
The main objective of Mexico’s central bank, also known as Banxico, is to keep inflation at low and stable levels (at or near its target of 3%, the midpoint of a tolerance band between 2% and 4%. %). To do this, the bank establishes an appropriate level of interest rates. When inflation is too high, Banxico will try to control it by raising interest rates, which makes borrowing more expensive for households and businesses, thus cooling demand and the economy in general. 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 the MXN.
The publication of macroeconomic data is key to evaluating the state of the economy and can have an impact on the valuation of the Mexican peso (MXN). A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for the MXN. Not only does it attract more foreign investment, but it may encourage the Bank of Mexico (Banxico) to raise interest rates, particularly if this strength is accompanied by high inflation. However, if economic data is weak, the MXN is likely to depreciate.
As an emerging market currency, the Mexican Peso (MXN) tends to rise during periods of risk, or when investors perceive overall market risks to be low and are therefore eager to engage in investments that carry higher risk. . Conversely, the MXN tends to weaken in times of market turbulence or economic uncertainty, as investors tend to sell riskier assets and flee to more stable safe havens.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
