Mexican Peso depreciates on rumors of Lighthizer trade appointment

The Mexican Peso weakens on rumors Donald Trump has offered the job of trade representative to Robert Lighthizer.
The former US trade rep is known for his protectionist stance and could squeeze Mexico in future talks.
The Peso is further weighed by concerns the Republicans will win a majority in Congress, giving them a “clean sweep”.

The Mexican Peso (MXN) falls in its key pairs on Monday after ending the previous week on a negative note. The Peso lost 1.86% against the US Dollar (USD) on Friday after the Financial Times (FT) published a story about President-elect Donald Trump offering US attorney and known protectionist Robert Lighthizer the job of US Trade Representative, a post he held under Trump’s previous administration. Lighthizer is known to be a tough negotiator after representing the US in the current free trade agreement negotiations between the United States (US), Mexico, and Canada, the USMCA.

MXN weakened on fears that he will take an equally tough stance when the agreement comes up for renegotiation in 2026. In the run-up to the election, Trump vowed to hit Mexican auto imports with massive tariffs in an attempt to curb the number of cheap Chinese electric vehicles made in Mexico flooding the US market.

Mexican Peso declines on rumors of Lighthizer appointment

The Mexican Peso weakened overall at the end of last week after the FT reported that Donald Trump had offered Robert Lighthizer the job of US new trade chief. However, an article in Reuters on Friday said the opposite: one of its sources in the White House had called the rumors “untrue,” and Lighthizer had not been invited to take the role.

In a recent report on how the US's new protectionist government might impact its neighbours, Rating Agency Fitch stated, “An increase in tariffs and stricter import policies could reduce the competitiveness of Mexican products in the US market, reduce tax revenues derived from economic activity and affect payroll tax collection.” Such an outcome would also presumably reduce demand for the Peso, leading to its depreciation.

Another potential risk for the Peso emanating from north of the border is the increasing likelihood that the Republican party will win a majority in the US Congress. Republicans have already won the presidency and a majority in the US Senate. If they also secure a majority in Congress, it would give them a so-called “clean sweep”, with much greater powers to push through their legislative agenda without resistance. In addition, six out of the nine US Supreme Court justices have been appointed by Republicans, suggesting they also have the balance of power in an important counterweight to the legislator.

Votes for Congress are still being counted. However, the Republican party has won 214 seats to the Democratic party’s 203, with only 18 outstanding, according to the Associated Press. The threshold for a majority is 218.

According to forecasts by El Financiero, a Republican majority in Congress with Trump as President could lead the Peso to weaken even further against the USD. They estimate a band of between 21.14 and 22.26 for USD/MXN in such a scenario. The pair currently trades in the 20.00s.

If the Republicans fail to win a majority in Congress, however, the pair is likely to end up in a range between 19.70 and 21.14, says El Financiero.

On the economic data front, the Peso could see volatility later in the week when the Bank of Mexico (Banxico) meets on Thursday for its November policy meeting. Although recent inflation data came out higher than expected, experts still see a good chance of Banxico cutting the bank rate by 0.25% to 10.25%. Such a move would be negative for the Peso since lower interest rates attract lower foreign capital inflows.

Mexican Industrial Production data for September showed a 0.6% rise MoM compared to the 0.5% decline in August according to data from INEGI released Monday. On an annulaized basis the metric declined 0.4% compared to the 0.9% fall YoY recorded in August, and below the 0.0% expected.

Consumer Confidence for October, meanwhile, rose to 48.9 from 46.6 in September.

The US bond markets are closed for the Veterans’ Day public holiday.

Technical Analysis: USD/MXN resumes uptrend

USD/MXN recovers from the base of its rising channel and starts to extend higher in line with the broader uptrend.

USD/MXN Daily Chart

The pair seems to be renewing its short-term uptrend. It is already in an established medium and long-term uptrend. As the old technical analysis saying goes “the trend is your friend”, suggesting the odds favor more upside to come.

A break above the 20.80 high of November 6 would probably confirm more gains ahead, with 21.00 as the next key target and resistance level (round number, psychological support).

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.

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