- Inflation in the first half of January in Mexico falls below 4%, increasing optimism and supporting Banxico’s moderate outlook.
- The unexpected increase in unemployment claims in the US is due to climate distortions.
- Trump’s favorable comments on Mexico at the WEF ease trade tensions and strengthen the Peso.
The Mexican Peso (MXN) strengthened against the US Dollar during the North American session, hitting a ten-day high thanks to upbeat inflation data from Mexico and a worse-than-expected jobs report in the United States (US). . Furthermore, US President Donald Trump’s positive comments about Mexico at the World Economic Forum (WEF) were a tailwind for the Mexican currency. USD/MXN is trading at 20.37, down 0.54%.
Inflation in Mexico was better than expected, as general inflation for the first half of January fell to 3.69%, below 4% for the first time in four years, revealed the National Institute of Statistics, Geography and Informatics (INEGI) . Core inflation rose moderately, although both readings remained within the Bank of Mexico’s (Banxico) target of 3% plus or minus 1%, justifying Banxico’s intentions to reduce borrowing costs on February 6.
In the US, the number of Americans filing unemployment claims rose sharply last week, according to data released by the US Department of Labor. The report showed that bad weather, coupled with the fires in Los Angeles, applications could increase in the coming weeks.
Meanwhile, the Federal Reserve (Fed) is expected to keep rates unchanged next week. The main reasons behind that decision are the strength of the US economy, as evidenced by healthy economic growth, a strong labor market and more persistent inflation figures.
On the other hand, Mexico’s economy has continued to cool and is expected to grow only 1% in 2025. The slowdown benefited the disinflation process and supports Banxico’s dovish stance.
Recently, US President Donald Trump said he would demand respect from other nations and that he is dealing with Mexico “very well.” Following these comments, the USD/MXN pair extended its losses.
This week, Mexico’s economic agenda will present the Economic Activity for November, which is expected to improve in monthly but not annual figures. On the US side, traders are awaiting preliminary PMIs from S&P Global and Consumer Sentiment.
Daily Market Summary: Mexican Peso Appreciates as Inflation Falls
- The Mexican Peso advances against the US Dollar even though lower inflation figures suggest Banxico will cut rates. Instead, the Fed is expected to keep monetary policy unchanged and wait for the March meeting.
- Inflation in the first half of January in Mexico increased by 3.69% year-on-year, down from 4.44%. Core inflation for the same period increased from 3.62% to 3.72% year-on-year.
- Citi revealed its Expectations Survey, in which Mexican private economists revised the Gross Domestic Product (GDP) figures for 2025 downward to 1%.
- Regarding inflation expectations, analysts estimate that headline and core inflation will fall below 4%, each at 3.91% and 3.68%, while the exchange rate is expected to finish near 20.95.
- Economists estimate that the Bank of Mexico (Banxico) will reduce rates by 25 basis points (bp) from 10.00% to 9.75%, although some analysts expect a 50 bp cut at the February 6 meeting.
- The divergence between Banxico and the US Federal Reserve (Fed) favors a greater rise in the USD/MXN pair.
- US President Trump ordered a comprehensive review of US trade policy, setting an April 1 deadline for recommendations that could significantly transform the country’s trade relations, including the US-Agreement. Mexico-Canada (USMCA), which will be reviewed for the first time in 2026.
- Money market futures have priced in 44 bps of Fed rate cuts in 2025, according to data from the CME FedWatch tool.
USD/MXN Technical Outlook: Mexican Peso Rises as USD/MXN Falls Below 20.30
USD/MXN fell below 20.50 sponsored by Trump’s friendly rhetoric on Mexico, which has pushed the exchange rate below key support levels such as the 20-day and 50-day SMA, each at 20.55 and 20.37.
Despite this, the bullish trend is still in play. If the sellers push the price below the January 6 low of 20.22, it will clear the way to challenge the 100-day SMA at 20.05. On further weakness, the exotic pair could test 19.50.
Conversely, for a bullish resumption, USD/MXN must rise above 20.55 so that buyers have a clear path to challenge the year-to-date (YTD) high at 20.90. Once surpassed, the next stop would be 21.00, followed by the March 8, 2022 peak at 21.46 before the 22.00 figure.
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 that overall market risks are 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.
