Mexican Peso climbs as Trump's tariffs rhetoric continues
- Mexican Peso strengthens despite Fed officials warning of stalled disinflation.
- Mexico’s Retail Sales and Q4 GDP are expected to show an economic slowdown.
- Banxico minutes could offer clues on potential 50 bps rate cuts.
The Mexican Peso (MXN) rallied for the sixth consecutive day amid an upbeat market mood, which keeps risk-sensitive currencies appreciating despite some Federal Reserve (Fed) officials turning slightly hawkish. At the time of writing, USD/MXN trades at 20.22, down 0.27%.
Mexico’s economic docket remained absent earlier in the week, though Retail Sales data and Banco de Mexico (Banxico) minutes of its last meeting could drive price action on Thursday. Towards the end of the week, Gross Domestic Product (GDP) figures would be of interest to USD/MXN traders.
Retail Sales in December are expected to show Mexico’s economy slowdown. The final GDP reading for Q4 2024 is expected to show a contraction on a quarterly basis and is foreseen to expand annually.
Meanwhile, investors await Banxico’s minutes, which will help them gather clues about the intention of reducing rates at a 50 basis point (bps) pace during the year.
In other news, Marcelo Ebrard, Mexico’s Secretary of Economy, revealed that he would meet this Thursday with his counterparts from the United States (US) government in Washington to discuss matters regarding tariffs and bilateral economic integration.
In the US, Federal Reserve officials turned cautious after the disinflation process stalled, as the Consumer Price Index (CPI) had risen for five straight months. San Francisco Fed President Mary Daly said during a conference in Arizona: “Policy needs to remain restrictive until… I see that we are really continuing to make progress on inflation.”
Daily digest market movers: Mexican Peso surges amid Fed steady stance
- Monetary policy divergence between Banxico and the Fed favors further USD/MXN upside. The Fed is expected to keep rates steady, while Banxico is foreseen to cut rates again by 50 basis points in the next meeting.
- Fed Governor Christopher Waller said that his "baseline" view was that US President Donald Trump's new trade restrictions would have only a modest impact on prices. Philadelphia Fed President Patrick Harker supported a steady interest-rate policy stance as he acknowledged that inflation has remained elevated and persistent in recent months.
- The US Dollar Index (DXY), which tracks the buck's performance against a basket of currencies, edges up 0.29%, at 107.04, usually a tailwind for USD/MXN.
- According to the December 2025 fed funds interest rate futures contract, the swaps market suggests that the Fed will reduce rates by 39 basis points towards year-end.
- Trade disputes between the US and Mexico remain in the boiler room. Although the countries found common ground previously, USD/MXN traders should know that there is a 30-day pause and that tensions could arise toward the end of February.
USD/MXN technical outlook: Mexican Peso is steady as USD/MXN is below 50-day SMA
At the time of writing, the USD/MXN pair is testing the 100-day Simple Moving Average (SMA) at 20.24, which, if decisively broken with a daily close below the latter, could pave the way to challenge the 20.00 psychological figure. Although the Relative Strength Index (RSI) remains bearish, its slope is flat, meaning that neither sellers nor buyers are in control.
On the other hand, if USD/MXN climbs past the 50-day SMA at 20.45, the exotic pair could rally to 20.50, followed by the January 17 daily high at 20.93.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
