Mexican Peso tumbles as USMCA shocks hit the Peso
- Trump’s USMCA remarks revive trade-risk premium for Mexican Peso.
- Mexico PMI returns to expansion, but treaty fears dominate.
- NFP could reinforce Fed hike bets and USD/MXN upside.
The Mexican Peso loses ground versus the Greenback on Wednesday amid growing speculation for a cancellation of the USMCA free trade signed in 2020, alongside overall US Dollar strength. At the time of writing, the USD/MXN trades at 17.55, up 0.37%.
USD/MXN surges as USMCA uncertainty and Dollar strength collide
Newswires reported that US President Donald Trump said he doesn’t want to extend the USMCA, and the US Trade Representative Jamieson Greer added that more time is needed to fix problems with the trade agreement.
Mexico’s Economy Minister Marcelo Ebrard said the US opted not to extend the pact, and that the treaty will undergo annual review for 10 years.
On Tuesday, Mexican President Claudia Sheinbaum sent a letter to extend the 32-year-old free trade zone for another 16 years, which could happen if all three countries agreed on an extension in its current terms.
Given the backdrop, the USD/MXN has aimed higher after bouncing off daily lows around 17.49, trading at current spot prices.
Mexico’s economic docket featured the S&P Global Manufacturing PMI, which came at 51.3 in June, up from 49.6 in May.
In the US, auto industry officials are calling for a swift resolution that restores duty-free trade in vehicles and parts between the US, Canada and Mexico. They argue that tariffs leave them at a disadvantage compared to car makers in Japan and South Korea.
US data was mixed with the June ADP Employment Change at 98K, below May’s 122K and the forecast of 113K. The US Challenger Job Cuts in June decreased 53% from 97,006 to 45,849. Layoffs slowed in June due to seasonal factors, with employers cutting 443,604 jobs—40% less than last year.
The ISM Manufacturing PMI dipped a tad to 53.3 in June, below the 54.0 expected, but the Prices Paid Index fell to 73 from 82.1, indicating lower inflation.
What can we expect for the USD/MXN?
Traders' eyes shift to the release of US Nonfarm Payroll figures. If the data reaffirms the US labor market's strength, it will further support the Federal Reserve’s worries about high inflation. Hence, further rate hikes are expected, which would reduce the interest rate differential between the two countries.
In that outcome, further USD/MXN upside is expected. Otherwise, further consolidation within the 17.00-17.50 range is expected for the foreseeable future.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 17.5510, extending its recovery above the clustered simple moving average (SMA) support around 17.36 and the previously broken long-term downtrend line, which now reinforces the underlying bid. The near-term bias stays constructive while the pair holds over these reclaimed supports, with the Relative Strength Index (14) at 58.18 hinting at steady, but not overstretched, bullish momentum as price approaches a fresh test of the shorter-term descending resistance line derived from 18.17.
On the topside, immediate resistance is aligned with that shorter-term downward-sloping trend line around 17.62, and a clean break above this barrier would open the way for further gains. On the downside, initial support is seen near the current pivot area around 17.55, ahead of the 50-day SMA support at roughly 17.36, while the longer-term trend-line break level near 16.11 marks a deeper structural floor if a broader pullback unfolds.
(The technical analysis of this story was written with the help of an AI tool.)
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.
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