- The Mexican Peso stabilizes after weakening for three consecutive days.
- Political changes across the border impacting Mexico have been the main driver of the depreciation of the Peso.
- USD/MXN is approaching November high after bouncing from the base of an ascending channel.
The Mexican peso (MXN) stabilizes on Wednesday after a three-day streak of weakness driven by a mix of investor fears about the impact of President-elect Donald Trump’s trade and immigration agenda in Mexico, a tone generally of risk aversion in markets outside the United States (US) (which tends to disproportionately impact the risk-sensitive Peso), and expectations that the Bank of Mexico (Banxico) will reduce its main interest rate by 25 basis points (pbs) (0.25%) at its next meeting on Thursday. Lower interest rates are generally negative for a currency as they reduce foreign capital flows.
Mexican Peso Weakens as Headwinds Accumulate Across the Border
The Mexican peso has depreciated as markets assess the impact of the political agenda proposed by Donald Trump on the Mexican economy. Trump is expected to implement high tariffs on Mexican products entering the US, especially Chinese electric vehicles that are manufactured across the border in Mexico. The appointment of Mike Waltz as National Security Advisor and Marco Rubio as Secretary of State in the US are particularly bad signs from this perspective due to their well-known tough stance on China. The tariffs are expected to reduce demand for foreign imports, which in turn will likely decrease demand for the Mexican peso as well.
The new Mexican government’s reforms to the judiciary also contravene the conditions of the existing free trade agreement between the US, Mexico and Canada, the T-MEC. This could give Trump the opportunity to demand a renegotiation before the deal officially expires in 2026, making the threat of tariffs more immediate.
Trump’s plan to deport millions of illegal immigrants, many of whom are likely Mexican, is another potentially negative factor for the Peso, as demand from workers in the US sending remittances to Mexico is a key driver. of the currency.
The policy has also drawn criticism from Mexico’s President Claudia Sheinbaum, who said the US needed immigrants for its economy and that “We will always defend Mexicans on the other side of the border.”
The increasing likelihood of the Republican party winning a majority in the US Congress, allowing them to freely implement Trump’s radical policies after winning the Senate, could also impact the MXN. The final seats are still being called, but according to the Associated Press, the Republican party has gained 216 seats to the Democratic party’s 207, with only 12 remaining. The threshold for a majority is 218.
According to El Financiero’s forecasts, a Republican majority in Congress with Trump as president could lead the Peso to weaken even further against the USD. In such a scenario, they estimate a band between 21.14 and 22.26 for the USD/MXN.
Technical Analysis: USD/MXN nears November high
USD/MXN rallies for three consecutive days after finding a bottom at the base of an ascending channel. It appears to have renewed its short-term uptrend, and given technical analysis that says “the trend is your friend,” the odds favor a continuation higher.
USD/MXN Daily Chart
Furthermore, USD/MXN is also in a medium to long-term uptrend, adding weight to the upward move. A break above 20.80 (November 6 high) would confirm a higher high and an extension of the uptrend. The next upside target is at 21.00 (round number, psychological support), where buyers could start to find resistance.
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.
