- The Mexican Peso extends its weakness into a fourth day as multiple risks lead traders to press “sell”.
- Trump Tariff threats, a critical IMF report, political risks and weak data all combine to weigh on the Mexican currency.
- USD/MXN extends its rally from the base of a major rising channel as technical indicators point north.
The Mexican Peso (MXN) seems to be rinsing and repeating the depreciation of the past few days on Thursday as market bears – now more confident in the persistence of the evolving downtrend – push the Peso lower in all its key pairs.
A cocktail of ingredients is contributing to the Peso’s shakedown, including former president Donald Trump’s threat to slam Mexican auto imports with tariffs of up to 300%, an International Monetary Fund (IMF) report that highlighted a slowdown in economic activity; political risk, and a deterioration of Consumer Confidence data for September.
Mexican Peso cracks as Donald thumps imports piñata
The Mexican Peso declined on average 1.5% on Tuesday, after Donald Trump said in an interview with Bloomberg News that “Mexico is a tremendous challenge for us.” He went on to explain how China was building mega car-manufacturing plants on the US-Mexico border, from where it was flooding the US market and hounding out US competitors.
Trump vowed to stop the practice by reinstating high tariffs and so enable a regeneration of the US auto industry. Given the significance of the automotive industry to the Mexican economy, as well as the demand for Peso’s generated by exports to the US, the former president’s comments weighed on MXN..
Mexican Peso undermined by IMF report
The Mexican Peso saw further weakness after the IMF published a report on Tuesday in which it forecast Gross Domestic Product (GDP) growth slowing to 1.5% at the end of 2024. This comes after the most recent GDP data showed the economy grew 2.1% in Q2. It is also below the Bank of Mexico’s own 2.1% forecast for 2024, although it is slightly higher than the average of the responses in the Banxico’s September survey of private-sector analysts of 1.45%.
The main reasons for the slowdown were given as “binding capacity constraints and a tight monetary policy stance” as well as weaker-than-expected growth in the US and the “unforeseen effects from recent institutional reforms”, according to the report. The latter refers to the controversial judicial reform, which has spooked markets.
In regards to headline inflation, the IMF saw this falling to the Bank of Mexico’s (Banxico) 3.0% target in 2025, in line with the central bank’s own forecasts but below the Banxico survey average forecast of 3.86% (3.80% median).
Banxico set to cut and cut rates again before year-end
Further downwards pressure on the Peso comes from expectations of lower interest rates, which reduce foreign capital inflows. The central bank is expected to cut the prime interest rate by 50 basis points (bps) (0.50%) before the end of 2024, bringing it down to 10.00% from 10.50%.
This is reflected in Banxico’s survey mean forecasts, which show respondents project a fall in the bank rate to an average of 10.04% by the end of 2024 (10.00% median) and 8.09% by the end of 2025 (8.00% median).
Technical Analysis: USD/MXN extends recovery from base of rising channel
USD/MXN extends its recovery from support provided by the base of a rising channel as well as the (red) 50-day Simple Moving Average (SMA) nearby.
USD/MXN Daily Chart
USD/MXN is now probably in a short-term uptrend, which given the technical analysis principle that “the trend is your friend,” is biased to continue.
The break above the 19.83 (October 1 high) target will now probably lead to a move up to between 20.10-20.15 and the vicinity of the September 10 high at 20.13.
The Moving Average Convergence Divergence (MACD) (blue) line is rising sharply and has broken above its (red) signal line, further indicating a bullish bias.
Mexican Peso FAQs
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.
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.
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.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
How will Euro react to European Central Bank policy decisions? – LIVE
The European Central Bank (ECB) is set to lower key rates again in October amid growing signs of a worsening economic outlook and continuous disinflation. The Euro's valuation could be impacted by the ECB's language and President Lagarde's remarks.
GBP/USD retakes 1.3000 ahead of US Retail Sales data
GBP/USD is grinding higher to retest 1.3000 in the European session on Thursday. The pair benefits from a recovery in risk sentiment and a pause in the US Dollar advance. All eyes now remain on the US Retail Sales data for fresh trading directives.
Gold rises toward $2,700, sets new record-high
Gold price prolongs its one-week-old uptrend for the third straight day and trades at a new record-high above $2,680. Investors await the weekly Initial Jobless Claims and September Retail Sales data releases from the US.
Bitcoin: Recent rally fuels “Uptober” hopes
Bitcoin demand appears to be picking up, according to a CryptoQuant report. BTC’s performance since the fourth halving closely resembles that of the third halving, when prices increased sharply.
Another unconvincing policy briefing fails to inspire confidence
Chinese authorities are playing the long game, trying to keep investors focused on the bigger picture, multiple stimulus measures spread out over time, with a bit of subtle bid support from state-backed institutions.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.