- USD/MXN recovers to near 20.50 as Mexican Peso gives up some gains that were driven by a delay in tariff imposition on Mexico by US President Trump.
- The safe-haven appeal of the USD diminishes as investors expect Trump’s tariff agenda would be less fearful than anticipated.
- Investors await the US JOLTS Job Openings data, which will demonstrate the current status of labor demand.
The USD/MXN pair bounces back to near $20.50 in Tuesday’s European session after nosediving from Monday’s high of 21.29. The pair gains as the Mexican Peso gives up some gains that were inspired by United States (US) President Donald Trump’s decision to postpone his orders of imposing 25% tariffs on Mexico and Canada.
President Trump delayed his tariffs plans on Mexico after it agrees to support the US to restrict the passage of drugs and undocumented immigrants to their economy. In a way to dodge tariffs, Mexican President Claudia Sheinbaum took the matter seriously and supported Trump’s agenda of tightening immigration controls by sending 10,000 troops on the border. The event also frozen risks of economic damage to the Mexican economy for now.
Meanwhile, investors are expecting that Trump’s tariff agenda is mere a tool to have a dominant position in negotiations with US’s trading partners, which has diminished safe-haven risk premium of the US Dollar (USD). The USD faces a sharp selling pressure in every attempt of revival from Monday, with the US Dollar Index (DXY) trading cautiously around 108.40.
Going forward, the major trigger for the US Dollar will be the US JOLTS Job Openings data for December, which will be published at 15:00. The economic data will show the current status of labor demand. Economists expect that employers posted 8 million fresh jobs, marginally lower than almost 8.10 million in November.
Investors will pay close attention to the job openings data as it will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall 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.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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