Mexican Peso seesaws as US Dollar bulls return ahead of the release of Banxico Minutes
- The Mexican Peso broadly steadies on renewed US strength following a court ruling to block Trump’s tariffs.
- Traders focus on Banxico Meeting Minutes and US Jobless Claims as potential next catalysts for the USD/MXN pair.
- The USD/MXN breaks prior psychological resistance at 19.40.
The Mexican Peso (MXN) swings between mild gains and losses against the US Dollar (USD) on Thursday as markets digest a court ruling that blocks US President Donald Trump from imposing tariffs on imports.
At the time of writing, USD/MXN is trading in a tight range with psychological support firming at 19.40.
A US federal court ruled against President Trump’s sweeping “Liberation Day” tariffs, striking them down as unlawful under emergency powers. While the decision lifted global risk sentiment, it also boosted the US Dollar and highlighted ongoing uncertainty around US-Mexico trade policy, further weighing on the peso.
Also supporting the US Dollar, the Federal Reserve’s (Fed) Minutes from the May meeting revealed on Wednesday that policymakers are prepared to keep interest rates elevated for longer if inflation pressures persist.
At the same time, Banco de México’s (Banxico) Quarterly Report flagged rising domestic recession risks, cutting the 2025 GDP growth forecast sharply to 0.1% and reinforcing a cautious policy outlook.
On Thursday, key economic releases for the US include the second estimate of US Q1 Gross Domestic Product (GDP) and Weekly Initial Jobless Claims, which are expected to influence the Federal Reserve’s policy outlook. Meanwhile, in Mexico, attention shifts to the Bank of Mexico’s meeting Minutes, which are expected to provide deeper insight into policymakers’ thinking following the recent downgrade in growth projections.
Mexican Peso daily digest: USD/MXN awaits signs from Banxico
- At the May meeting, Banxico Governor Victoria Rodriguez Ceja stated that the governing board estimates it could continue calibrating the monetary stance and consider adjusting it by a similar amount as the May 50-bps cut. The Meeting Minutes, to be released at 15:00 GMT, may provide additional clues around Banxico’s next move in their attempt to balance inflation and economic growth.
- On Wednesday, the tone of the Federal Reserve Open Market Committee (FOMC) Minutes aligned with market expectations, as policymakers emphasized a need to assess the full impact of trade measures and inflationary pressures before adjusting policy. “Participants agreed that uncertainty about the outlook had increased and it was appropriate to take a cautious approach to monetary policy,” the Minutes said.
- According to the CME FedWatch Tool, market participants are currently pricing in a 48.3% chance of a rate cut in September. For June and July meetings, the expectation is that the Fed will maintain its benchmark rate at the current range of 4.25%-4.50%.
- The Banxico Q1 Quarterly Report for January-March acknowledged rising recession risks for the Mexican economy, downgrading the 2025 GDP growth forecast from 0.6% to 0.1%. Despite the downgrade, the central bank maintained a cautious policy stance. It stated, “The reference rate is expected to remain in restrictive territory for an extended period,” suggesting that future cuts will be gradual and data-dependent.
- The Core Personal Consumption Expenditure (PCE) figures for April – the Fed's preferred inflation measure – and the final University of Michigan Consumer Sentiment figures are both scheduled for release on Friday. With the Fed reiterating its 'data-dependent' stance, these data points are crucial for understanding inflation and consumer sentiment.
Mexican Peso technical analysis: USD/MXN finds support at 19.40
USD/MXN is trying to break decisively above prior technical resistance at 19.40, a level that has been limiting the pair's upside potential over recent days.
In anticipation of Wednesday’s FOMC Minutes, the US Dollar strengthened against the Peso, allowing it to clear prior trendline resistance at 19.29 and the 10-day Simple Moving Average (SMA) near 19.34.
With these levels now coming into play as support, bulls are gearing up for a retest of the 20-day SMA at 19.45. A break of this level and of the April 23 low at 19.47 could open the door for 19.58, which aligns with the 78.60% Fibonacci retracement (Fib) level of the October-February move.
USD/MXN daily chart
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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