- The Mexican Peso slides on renewed US optimism
- US–China 90-day tariff pause fuels renewed demand for the US Dollar
- USD/MXN challenges resistance, erasing Friday’s losses
- Banxico is likely to cut rates on Thursday as the Fed holds, narrowing the yield gap.
The Mexican Peso (MXN) is trading lower against the US Dollar (USD) during Monday’s European session, weighed down by rising demand for the Greenback following a breakthrough in US–China trade talks and ongoing Banco de Mexico (Banxico) policy easing.
At the time of writing, USD/MXN is trading around 19.55, up 0.55% on the day, as investors shift focus to Thursday’s Banxico policy decision and broader implications of US tariff policy on Mexican exports.
US–China trade truce boosts Dollar demand and puts pressure on the Peso
On Monday, the United States and China announced a 90-day suspension of escalating tariffs, providing a temporary reprieve to global trade tensions. The deal has boosted market sentiment and eased concerns over a US-led recession, reinforcing expectations that the Federal Reserve (Fed) may have more room to keep interest rates elevated if economic conditions remain firm.
In contrast, Mexico’s economy remains under pressure from existing US tariffs on aluminium, steel, and autos. These 25% import duties have increased the cost of Mexican goods in US markets, threatening competitiveness and placing strain on export-driven industries. Local data and commentary from policymakers have increasingly reflected these challenges, showing signs of a broader economic slowdown.
In response, Banxico has pursued a dovish monetary path, cutting interest rates at six consecutive meetings to support growth and mitigate external pressures. A further 50 basis-point (bps) cut is expected at Thursday’s rate decision, which would further narrow the interest rate differential between Mexico and the US.
Mexican Peso daily digest: Trade optimism overshadows Mexican Industrial Output report
- On Monday, Mexico’s March Industrial Output data for March declined 0.9% MoM (vs. -1.1% est.) and rose 1.9% YoY (vs. 1.5% est.), marking a rebound from the previous -1.3% contraction.
- Despite the better-than-expected figures, Banxico is still expected to cut rates on Thursday as broader economic pressures persist and policy divergence with the Fed continues to drive USD/MXN higher.
- With US yields remaining elevated and Mexico’s policy outlook turning increasingly accommodative, capital flows have continued to favor the US Dollar, exacerbating downside pressure on the Peso.
- US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer met with Chinese Vice Premier He Lifeng in Geneva over the weekend, where both sides reported progress. He described the talks as “candid and constructive,” while the US said “substantial progress” was made toward resetting trade relations.
- The US agreed to cut tariffs on Chinese imports from 145% to 30% for 90 days, providing relief to global supply chains.
- Beijing committed to lowering tariffs on US goods from 125% to 10% and announced the suspension of key retaliatory countermeasures.
- At 14:25 GMT, Fed Governor Adriana Kugler will speak at the NABE-Central Bank of Ireland Symposium in Dublin, with investors watching for policy signals amid a steady economic backdrop.
- According to the CME FedWatch Tool, there is a 92.1% probability that the Federal Reserve will keep rates steady at 4.25–4.50% in June, with the first 25 bps rate cut now only priced for September.
- In contrast, Banxico has cut rates at six consecutive meetings and is expected to continue easing, adding pressure on the Peso via a narrowing interest rate differential.
USD/MXN tests trendline resistance from the April decline
USD/MXN remains confined within a narrow consolidation range above the key support at 19.42, with price action largely sideways in early May trading. The pair is currently testing a descending trendline resistance drawn from the April high, aligning closely with the 10-day Simple Moving Average (SMA) near 19.587, which has capped multiple upside attempts over the past two weeks.
USD/MXN continues to oscillate within a horizontal consolidation zone roughly between 19.42 and 19.65, with a cluster of candles suggesting indecision as bulls attempt to reclaim short-term control. A breakout above the trendline could signal a bullish reversal, potentially opening the path toward the 23.6% Fibonacci retracement level, drawn from the April 9 high of 21.08 to Monday’s low of 19.42, at 19.81, with the 38.2% Fibonacci retracement as the next resistance level at 20.05.
USD/MXN daily chart
On the downside, failure to break above trendline resistance could see renewed selling pressure, with key support holding at 19.42 (April low) and further downside risk toward 19.30–19.20 if the zone fails.
Momentum remains neutral to slightly bearish, with the Relative Strength Index (RSI), a momentum indicator, currently reading 41.40, still below the 50 midpoint, reflecting weak buying pressure. A sustained RSI move above 50 would be needed to confirm improving bullish momentum.
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.
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