- The Mexican Peso trades in a tight range below 19.30 with risk-sentiment weighing on emerging market currencies despite a weaker US Dollar.
- Trump’s tariff threats on the EU highlight intensifying trade tensions and an uncertain global growth outlook.
- USD/MXN fails to break psychological and Moving Average resistance.
The Mexican Peso (MXN) remains steady against the US Dollar (USD) despite US President Donald Trump’s threat of sweeping tariffs on the European Union (EU).
At the time of writing, USD/MXN is trading below the key psychological level of 19.30, with traders digesting developments out of Mexico and the United States.
Recession fears rise on Trump’s proposed 50% tariff increase on EU imports
On Friday, Mexico’s Trade Balance data showed the country reported a trade deficit of $88 million in April, below the $160 million forecast by analysts.
The report, published by the National Institute of Statistics and Geography of Mexico (INEGI) on a monthly basis, reflects the difference between a country’s exports and its imports. Despite posting a narrower-than-expected trade deficit, it still represents a swing from the $3.442 billion surplus reported in March.
Meanwhile, Trump published a post on his Truth Media social media, proposing a 50% tariff for imports from the EU, expected to take effect on June 1st. Trump stated that the EU was “very difficult to deal with” and “our negotiations are going nowhere”.
Recent developments in the US include the passage of Trump’s ‘one big beautiful’ tax bill and a downgrade in Moody’s credit rating. These events have contributed to a weaker dollar, which has boosted demand for alternative assets.
Mexican Peso daily digest: US fiscal and tariff concerns linger
- The proposed tariffs of 50% on the EU and 25% on Apple raise concerns about their impact on the global economy.
- Additionally, fiscal concerns surrounding the passing of Trump’s proposed tax bill have increased. The “Big, Beautiful Bill” is expected to increase the US federal deficit by $3.8 trillion over the 2026-2034 period, according to the US Congressional Budget Office.
- The recent rating downgrade by Moody’s agency, combined with President Trump’s tax bill, has weighed on the US Dollar. A rating downgrade reflects reduced faith in the US to repay its debt.
- The CME FedWatch tool indicates a 94.7% probability that interest rates will remain in the current range of 4.25%-4.50% in June, with analysts not expecting any Fed rate cut until September.
- With the Bank of Mexico (Banxico) cutting interest rates by 0.50% at its May meeting, the divergence in interest rate differentials between both countries should support demand for the USD.
- However, on Thursday, Mexico’s 1st half-month inflation data came in higher than expected at 0.09%, reflective of an increase in price pressures.
- Thursday’s data also showed that Mexico’s Growth Domestic Product (GDP) grew by 0.2% on the quarter and by 0.8% on the year, in line with market expectations.
- With the economy seen as resilient despite increased tariffs from the US, it could reduce pressure on Banxico to continue cutting rates in the near term.
Mexican Peso technical analysis: USD/MXN steadies below 19.30
USD/MXN has fallen back below 19.30, with prices consolidating below the 10-day and 20-day Simple Moving Average (SMA) at the respective levels of 19.39 and 19.49.
With a break above 19.30 potentially bringing these levels into play, a move and retest of the May low at 19.23 would suggest that sellers remain in control of the trend.
USD/MXN daily chart
The Relative Strength (RSI) indicator is at 38.92, showing downside momentum is firm.
Should the downtrend hold, a retest of the May low of 19.23 would bring the October low of 19.11 into sight, with the next layer of support at the next psychological level of 19.00.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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