Mexican Peso hits yearly high on weak US Dollar
- The Mexican Peso prolongs its gains to three straight days as the US Congress prepares for voting on Trump’s tax bill.
- Expectations of strong Mexican Retail Sales data and high inflation could improve the Mexican Peso’s appeal.
- USD/MXN is technically bearish, with sellers eyeing a test of the psychological 19.00 figure.
The Mexican Peso (MXN) rallied to a new yearly high against the US Dollar (USD) on Tuesday as investors continued to digest Moody’s downgrade to United States (US) government debt and wait for the vote on the Tax bill presented by the Trump administration. At the time of writing, USD/MXN trades at 19.28, down 0.18%.
Earlier, the Peso hit a new yearly high as the exotic pair fell to 19.25 earlier during the European session. Mexico’s economic docket remained absent, with traders eyeing the release of April’s Retail Sales on Wednesday, followed by the final reading of the Gross Domestic Product (GDP) for the first quarter of 2025 and the May mid-month inflation reading.
Across the northern border, the US economic schedule featured some Federal Reserve (Fed) officials grabbing the headlines. Meanwhile, the US Congress is preparing to approve President Trump’s “One Big Beautiful Bill,” which is expected to increase the US federal deficit significantly over the next decade.
Mexican Peso daily drivers: The Greenback’s fall on uncertainty is the Peso’s victory
- The main catalysts for USD/MXN remain broad US Dollar weakness, as depicted by the US Dollar Index (DXY). The DXY, which tracks the performance of the buck’s value against a basket of six currencies, falls 0.31% to 100.07.
- Mexico’s Retail Sales in April are expected to decline from 0.2% to 0.1% MoM. On an annual basis, sales are expected to improve from a 1.1% contraction to 2.2%.
- Mexico’s GDP economic growth for Q1 2025 is projected to rise by 0.2% QoQ, up from a 0.6% contraction in Q4 2024. May’s mid-month inflation is expected to rise by 4.01% YoY, and core figures at 3.98% YoY.
- On Monday, Banco de México (Banxico) Governor Victoria Rodríguez Ceja said that monetary policy would stay restrictive but hinted that there is room to reduce the benchmark interest rate in an interview published by El Financiero.
- Last week, Banxico reduced its rates to 8.50%, and cited the need for additional calibration of monetary policy and anticipating further easing.
- Moody’s downgrade of US government debt from AAA to AA1 continues to weigh on the US Dollar. The international agency cited the lack of action by successive US administrations and Congress as contributing to the country’s worsening fiscal position, raising concerns over long-term debt sustainability.
- Recently, St. Louis Fed President Alberto Musalem stated that if inflation expectations become de-anchored, the Fed's policy should focus on maintaining price stability. He said that there is uncertainty about whether tariffs would have a temporary or persistent effect on inflation, and added that if trade tensions are durable and de-escalated, inflation could get back to target.
- Beth Hammack of the Cleveland Fed stated that US government policies have increased the difficulty for the Fed to manage the economy and fulfill the dual mandate role. She said that the odds of a stagflationary scenario are rising.
USD/MXN technical outlook: The Peso surges as USD/MXN refreshes yearly lows, eyes on 19.00
USD/MXN remains bearish-biased, with sales poised to challenge the 19.00 figure in the near term. Momentum favors an extension of the downtrend, as indicated by the Relative Strength Index (RSI) being below the 50 neutral line and approaching extreme oversold conditions.
That said, if USD/MXN clears 19.00, last hit on August 21, 2024, then the next support would be 18.50, followed by the 18.00 psychological mark. Conversely, buyers must reclaim 19.50 to remain hopeful of hitting higher prices, with the first resistance seen at 19.53, the 20-day Simple Moving Average (SMA), followed by the 50-day SMA at 19.90.
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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