- USD/MXN dips 0.41% to 20.41 ahead of key trade developments.
- Trump’s 25% tariffs on Mexico set to take effect Tuesday, pending final decision.
- Mexico’s business confidence deteriorates, manufacturing contracts for the eighth straight month.
- US economic data mixed with weak ISM PMI fueling growth concerns.
The Mexican Peso recovers some ground against the Greenback on Monday, a day before tariffs of 25% would be applied on Mexican goods imported to the United States (US) as President Donald Trump promised. However, the Peso rises as decent US economic data did little to offset projections that the economy might not grow in Q1 2025, according to the Atlanta Fed’s GDPNow model. The USD/MXN trades at 20.41, down 0.41%.
Over the weekend, the US Commerce Secretary said that tariffs on Mexico and Canada commence on Tuesday but that Trump would determine whether to stick to the planned 25% level. If tariffs proceed as projected, it could prompt traders to seek the security of the US Dollar (USD) and push the USD/MXN higher. Otherwise, the Peso could sustain a relief rally, and the pair could continue to edge lower.
Mexico’s economic data showed that business manufacturing activity contracted for the eight straight month, revealed S&P Global. At the same time, Business Confidence in February continued to witness a deterioration, revealed by the National Statistics Agency (INEGI), underscoring the gloomy economic outlook.
Banco de Mexico (Banxico) private economists’ poll was revealed, and analysts expect growth to remain below 1%, while inflation expectations remain unchanged.
Across the border, Manufacturing PMI data revealed by S&P Global and the Institute for Supply Management (ISM) was mixed. The former expanded compared to January’s figures, while the ISM dipped but remained in expansionary territory.
Daily digest market movers: Mexican Peso rises despite soft economic data
- Mexico’s Manufacturing PMI in February, according to S&P Global, contracted 47.6, down from 49.1. That was due to “demand conditions remaining on a downward path and cashflow pressures intensifying,” said Pollyanna de Lima, Economics Associate Director at S&P Global Market Intelligence.
- Business Confidence in Mexico fell 1.4 points, down from 51.5 to 50.1. Compared to last year, the index plunged 4.9 points, though the index has expanded for the last 25 straight months above the 50 threshold.
- Banxico’s poll showed that Gross Domestic Product (GDP) is expected at 0.81%, down from 1% for 2025. Headline inflation is predicted to end at 3.71%, down from 3.83%, and core Consumer Price Index (CPI) is estimated to end at 3.75%, up from 3.75%.
- Economists estimate the USD/MXN exchange rate to end 2025 at 20.85, down from 20.90, but for 2026 they eye a depreciation of the Peso far beyond the 21.30 figure expected in the January poll.
- The US ISM Manufacturing PMI showed that business activity in February remained steady at 50.3, down from 50.9 and below economists’ estimates of 50.5.
- S&P Global revealed that manufacturing activity in February increased by 52.7, up from 51.2 and exceeding forecasts of 51.6.
USD/MXN technical outlook: Mexican Peso climbs as USD/MXN drops below 20.50
The USD/MXN uptrend remains in place, though the exotic pair has consolidated within the 20.20–20.70 range for the latest 18 days, hinting that buyers are not committed to pushing spot prices higher. Short term, momentum is tilted to the downside as depicted by the Relative Strength Index (RSI) turning bearish.
For a bearish continuation, the USD/MXN must clear the 100-day Simple Moving Average (SMA) at 20.30. Once surpassed, the next stop would be the 20.00 figure ahead of the 200-day SMA at 19.50. On the other hand, if buyers push the exchange rate past 20.50, they must clear the latest peak seen at 20.71 on February 6, before testing the February 3 high at 21.28.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
