USD/MXN rallies to 20.70-20.75 on Trump’s tariff plans, remains close to multi-year top

UZD/MXN catches aggressive bids on Tuesday in reaction to Trump’s tariff remarks.
A goodish USD recovery from a two-week low lends additional support to the pair.
Bets that the Fed will cut rates twice in 2025 caps gains for the buck and the major.

Haresh Menghani FXStreet

The USD/MXN pair regains positive traction during the Asian session on Tuesday and remains close to its highest level since July 2022 touched last week. Spot prices currently trade around the 20.70-20.75 area, up over 1.0% for the day, in the wake of US President Donald Trump's tariff remarks and resurgent US Dollar (USD) demand.

The Mexican Peso (MXN) weakens after Trump said this Tuesday that he intends 25% tariffs on Canada and Mexico, and the target date for tariffs would be as soon as early February. This comes on top of overnight dovish comments from Banco de Mexico (Banxico) Deputy Governor Jonathan Heath, saying that headline and core inflation rates will likely land below 4% in January. Heath added that the bank does not need to exaggerate a restrictive posture, which, along with the emergence of some USD buying provides a goodish lift to the USD/MXN pair.

The USD Index, which tracks the Greenback against a basket of currencies, rebounds swiftly from a two-week low touched on Monday amid worries that Trump's protectionist policies would reignite inflationary pressures. Furthermore, Trump's comments revived trade war fears and further benefits the safe-haven buck. That said, the recent signs of abating inflation in the US lifted market bets that the Federal Reserve (Fed) will cut interest rates twice this year. This, in turn, caps any further appreciating move for the buck and the USD/MXN pair.

Mexican Peso FAQs

What key factors drive the Mexican Peso?

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

How do decisions of the Banxico impact the Mexican Peso?

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. 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 MXN.

How does economic data influence the value of the Mexican Peso?

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

How does broader risk sentiment impact the Mexican Peso?

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD edges higher to mid-1.1600s; looks to US PCE Price Index for fresh impetus

The EUR/USD pair attracts some dip-buyers during the Asian session on Friday and recovers a part of the previous day's retracement slide from the 1.1680 region, or the highest level since October 17. Spot prices currently trade around mid-1.1600s and remain on track to register gains for the second straight week.

GBP/USD: Constructive view prevails above 1.3300 ahead of US PCE inflation data

The GBP/USD pair trades on a flat note near 1.3330 during the Asian trading hours on Friday. Traders prefer to wait on the sidelines ahead of the key US inflation report later on Friday. The US delayed Personal Consumption Expenditures Price Index report for September could offer some hints about the US interest rate path.

Gold flat lines above $4,200 mark; looks to US PCE Price Index for some meaningful impetus

Gold struggles to capitalize on the overnight bounce from the $4,175 area, or the vicinity of the weekly trough, and oscillates in a narrow trading range during the Asian session on Friday. Traders now seem reluctant and opt to move to the sidelines ahead of the September Personal Consumption Expenditures Price Index, or the Federal Reserve's preferred inflation gauge.

Pi Network: Bearish streak nears critical support trendline

Pi Network edges lower on Friday for the third consecutive day, approaching a local support trendline. The on-chain data suggests an increase in supply pressure as Centralized Exchanges experience a surge in inflows. Technically, the pullback in PI risks further losses, as the Moving Average Convergence Divergence indicator is flashing a sell signal.

Why the Fed may cut rates in December: Understanding the policy shift

The Fed has gone through a noticeable policy swing in recent months - from initiating a rate cut, to signaling a potential pause, and now shifting once again toward another cut in December. This has created understandable confusion among traders and investors trying to interpret the Fed’s reaction function.

XRP edges lower despite record on-chain activity and steady ETF inflows

Ripple is trading under pressure at the time of writing on Thursday, after bulls failed to break the short-term resistance at $2.22. The reversal may extend toward Monday’s low of $1.98, especially if risk-off sentiment persists in the broader cryptocurrency market.