- Mexican Peso holds steady as traders await fresh direction from central banks.
- Tensions over the US troop proposal add political risk but leave USD/MXN stable for now.
- Weak US ISM and PMI data raise doubts about US growth and Fed timing.
The Mexican Peso (MXN) remains stable against the US Dollar (USD) on Monday despite rising tensions over the weekend between Mexican President Claudia Sheinbaum and US President Donald Trump regarding a rejected proposal to deploy American troops in Mexico.
With the USD/MXN exchange rate trading at 19.617, 0.17% higher from Friday’s close at the time of writing, markets remain focused on upcoming US economic data, Federal Reserve interest rate expectations, and the broader risk environment for signs of the next potential catalyst that could drive the emerging market (EM) currency pair out of its recent range.
Mexican Peso weighs central bank policy with geopolitical risks
Over the weekend, Reuters reported that Mexican President Claudia Sheinbaum had turned down an offer from US President Donald Trump to allow US troops into Mexico to combat drug trafficking. Speaking at a public event in Texcoco, Sheinbaum reiterated Mexico’s position on sovereignty, stating, “We can work together, but you in your territory and us in ours.” On Sunday, Trump confirmed the proposal, calling cartel violence a major threat and referring to drug gangs as “horrible people.”
Meanwhile, fresh signs of slowing momentum in the US economy emerged Monday as the S&P Global US Composite Purchasing Managers Index (PMI) came in at 50.6 for April, down from 53.5 in March and below both the flash estimate (51.2) and market consensus (51.4). The reading, which captures activity across both the manufacturing and services sectors, reinforces concerns that the US economy is cooling more rapidly than expected.
While the exchange highlights long-standing sensitivities between the two nations, the Peso’s muted response suggests investors are prioritising economic fundamentals, particularly monetary policy, over political noise.
The Mexican Peso remains highly sensitive to shifts in global risk sentiment and developments in the United States, which accounts for nearly 80% of Mexico’s exports. As such, the direction of the USD/MXN pair is being shaped primarily by diverging interest rate expectations between the US Federal Reserve (Fed) and the Bank of Mexico (Banxico), alongside broader macroeconomic signals.
This week, market attention is firmly fixed on the upcoming Fed interest rate decision, scheduled for Wednesday, May 7.
While the Federal Open Market Committee (FOMC) is widely expected to hold the federal funds rate at 4.25%, the key focus for investors will be the messaging that accompanies the decision. Specifically, the tone of Fed Chair Jerome Powell’s post-meeting press conference will be critical in shaping expectations about the path of US interest rates in the second half of the year.
For the USD/MXN pair, any indication that the Fed may begin easing policy sooner than anticipated could shift capital flows, reduce the yield advantage of the US Dollar, and offer renewed support to the Mexican Peso. Conversely, a more cautious or data-dependent stance may reinforce existing range-bound conditions, keeping the pair sensitive to incremental shifts in economic data and central bank communication.
Daily digest movers: USD/MXN remains vulnerable to interest rate expectations
- According to the CME FedWatch Tool, markets are pricing in a 25-basis-point rate cut in July, as signs of softening US growth increase. A dovish tone from Powell this week could weigh on the US Dollar and support EM currencies like the Mexican Peso.
- Despite Friday’s better-than-expected Nonfarm Payrolls (NFP) report, which showed strong job creation, stable unemployment, and rising Average Hourly Earnings, the US Dollar failed to gain traction, highlighting market caution around the timing of future rate moves.
- Banxico is scheduled to meet on May 15, following two consecutive 50-basis-point rate cuts that brought the benchmark rate to 9.00%. With inflation easing and growth subdued, markets expect another cut, though Banxico has signaled a cautious, data-driven approach.
- The Mexican economy grew 0.2% QoQ in Q1 2025, narrowly avoiding a technical recession. Gains were concentrated in agriculture and mining, while manufacturing contracted and services stagnated.
- The reintroduction of US tariffs on key Mexican exports, including vehicles and metals, has added pressure to Mexico’s external sector and may weigh on growth and foreign investment in the months ahead.
Global uncertainties, including slowing international demand, volatile commodity prices, and potential shifts in US trade or immigration policy, pose additional risks to the Peso and investor confidence in emerging markets.
Peso flirts with descending trendline, highlighting potential breakout zone
From a technical standpoint, USD/MXN remains in a tight consolidation range just below the 10-day Simple Moving Average (SMA) at 19.5864 as the pair struggles to break free from a well-defined descending channel.
The Fibonacci retracement is drawn from the April high of 21.0826 to the April low of 19.451, establishing a clear structure for potential reversal or continuation. The pair is currently testing the 100.0% Fibonacci placeholder at 19.4701, which has served as solid support in recent sessions.
A sustained break below this zone could expose the 61.8% Fibonacci retracement level of the 2024 – 2025 move at 19.3721, opening further downside.
On the upside, resistance is seen first at the 10-day SMA and then at 19.6910, with stronger resistance aligned near 19.8152 (78.6% Fibo Retracement). A descending trendline from the April peak continues to cap recovery attempts.
Meanwhile, the Relative Strength Index (RSI) remains subdued below 40, indicating that bearish momentum is still in place. Although a Hammer candlestick appeared on April 24, it has not yet triggered any meaningful bullish follow-through, keeping the near-term bias tilted cautiously lower unless the pair breaks above descending trendline resistance.
USD/MXN daily chart
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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