The Mexican Peso rallied against the US Dollar on Monday after reports suggested President Trump's incoming administration might postpone tariffs. However, the potential for a US-Mexico border emergency declaration could introduce new tensions and impact the Peso's trajectory.
The Mexican Peso (MXN) strengthened against the US Dollar (USD) on Monday, fueled by reports suggesting that President Donald Trump 's incoming administration might postpone implementing tariffs. The USD/MXN exchange rate dipped below 20.53, marking a decline of over 1.20% from its daily peak of 20.89. This positive market sentiment stems from a Wall Street Journal article indicating that tariffs might not be immediately enforced following Trump's inauguration as the 47th US President.
The article further revealed that Trump directed federal agencies to investigate and address persistent trade deficits and unfair trade and currency practices by other nations, particularly focusing on China, Canada, and Mexico. Despite the optimistic outlook, the potential for a US-Mexico border emergency declaration by President Trump once in office could introduce new tensions and negatively impact the Peso's performance. Adding to the complexity, while the market awaits Trump's actions, Banco de Mexico (Banxico) Deputy Governor Jonathan Heath expressed a dovish stance on inflation, suggesting that headline and core inflation figures might reach 4% in January. Heath emphasized that the Central Bank doesn't need to overreact with restrictive measures, citing the December inflation report as positive news due to inflation falling below 4.26%. This week, Mexico's economic calendar features crucial data releases, including Retail Sales, mid-month Inflation, and a proxy for November's Gross Domestic Product (GDP) Economic Activity. Economists predict a 1.2% GDP growth for 2025, down from 1.6% in 2023. They also anticipate Banxico cutting interest rates by at least 150 basis points to 8.50% by year-end. Meanwhile, the Federal Reserve (Fed) projects a 50 basis point interest rate cut in its latest Summary of Economic Projections (SEP). Money market futures indicate 42.5 basis points of Fed rate cuts in 2025. Technically, the USD/MXN uptrend remains intact despite the recent pullback. The pair reached a daily low of 20.43 near its 50-day Simple Moving Average (SMA) at 20.38 before recovering. A sustained move above the year-to-date (YTD) high of 20.94 could pave the way for a challenge of the 21.00 psychological barrier. Conversely, a break below the 50-day SMA would target the 100-day SMA at 20.04, followed by the 20.00 mark
Mexican Peso USD/MXN Donald Trump Tariffs US-Mexico Border Inflation Banco De Mexico Federal Reserve
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