Mexican peso strengthens amid tariff moderation signals

The Mexican peso is appreciating at the start of the week, primarily influenced by external factors.

Recently, the currency appreciated against the U.S. dollar, driven by reports suggesting possible tariff moderation by the Trump administration. This news generated optimism in Mexican markets, reflected in a 1.4% drop in USD/MXN.

The possibility that tariffs will target only critical imports and apply globally, rather than being widely imposed as proposed during the 2024 presidential campaign, represents a significant shift.

Mexico, whose economy is closely tied to trade with the United States, could be one of the main beneficiaries of this adjustment, explaining the peso’s strength.

However, it is crucial to maintain caution. While tariff optimism has provided relief to the peso, there are risk factors that could reverse this trend.

The upcoming Federal Reserve minutes and the speeches by its members will be decisive. A hawkish tone from the Fed, indicating a more restrictive monetary policy, could further strengthen the dollar and pressure the peso. Conversely, a more dovish stance could offer greater support to the Mexican currency. As we know, currency markets are highly sensitive to central bank signals.

In addition to external factors, it is important to consider Mexico’s internal situation.

Consumer confidence, a key indicator of economic sentiment, experienced a decline in December, standing at 47.1 points, the lowest level in five months. This figure reflects growing uncertainty about the country’s economic outlook and could exert additional pressure on the peso.

Economic data to be released this week, including inflation, automotive, and industrial production figures, will be crucial in determining the currency’s direction. Strong results could revitalize confidence and support the peso, while weak data may intensify concerns about economic growth and increase selling pressure on the currency.

As recent fluctuations in the dollar against other major currencies, such as the euro and the pound sterling, demonstrate, markets react quickly to news on trade policies. The possibility of less severe tariffs has sparked a “relief rally”, especially in sectors such as the European automotive industry. This global context highlights the interconnection of economies and the importance of monitoring not only Mexico’s internal factors but also international developments that could impact the peso.

In conclusion, while the Mexican peso has shown strength due to the possibility of a less aggressive tariff policy from the United States, significant risks remain. Fed monetary policy and Mexico’s domestic economic data will be key in the short term. Investors and analysts should closely monitor these factors to anticipate peso movements in a challenging global economic environment.”