- Mexican Peso shows resilience despite 25% US tariffs on steel and aluminum set for March 12.
- Fed Chair Jerome Powell’s latest comments underscore a less restrictive policy stance, affirming economic strength.
- Mexico’s Industrial Production deteriorates, but Peso benefits from market dynamics despite Banxico’s dovish tilt.
The Mexican Peso (MXN) remains steady against the Greenback on Tuesday after finishing Monday’s session with losses of 0.35%. Still, it stages a comeback as United States (US) President Donald Trump imposes 25% tariffs on Mexican steel and aluminum, expected to be effective March 12. Contrarily to depreciating, the Mexican currency strengthens slightly and the USD/MXN pair trades at 20.59, down 0.23%, after hitting a daily high of 20.65.
Federal Reserve (Fed) Chairman Jerome Powell has crossed the wires as of this writing. He said the Fed’s policy stance is less restrictive than it had been, adding that the economy remains strong and that “we do not need to be in a hurry to adjust our policy stance.”
Powell reiterated that monetary policy is in a good place and the US is not in a recession.
In Mexico, Industrial Production continued to deteriorate in December, highlighting the country’s economic slowdown. Despite this and Banco de Mexico’s (Banxico) dovish approach, the Peso has extended its gains.
Ahead this week, the US economic docket will feature the US inflation figures on the consumer and the producer side, along with further Federal Reserve speakers.
Daily digest market movers: Mexican Peso brushes aside tariffs concerns and rise
- Mexico’s Industrial Production (IP) in December plunged -1.4% MoM, below the -0.5% contraction expected by economists. In the twelve months to December, IP plummeted -2.7%, shrinking more than November’s -1.4%.
- On Monday, Banxico Governor Victoria Rodriguez Ceja was dovish and revealed that the central bank could cut rates of the same magnitude as in February, adding that the job of bringing inflation to the 3% goal has not concluded.
- Rodriguez added that Banxico remains attentive to what might happen in March after the 30-day grace period provided by Trump.
- Cleveland’s Fed President Beth Hammack commented that she favors holding rates steady for some time so the Fed can assess the economy. She added that the policy is ‘modestly restrictive’ and emphasized that it is still unclear whether inflation will keep moving towards the Fed’s 2% goal.
- Trade disputes between the US and Mexico remain in the boiler room. Although the countries found common ground previously, USD/MXN traders should know that there is a 30-day pause and that tensions could arise toward the end of February.
- Money market fed funds rate futures are pricing in 38.5 basis points (bps) of easing by the Fed in 2025.
USD/MXN technical outlook: Mexican Peso to remain range-bound
The USD/MXN pair uptrend remains intact, but Tuesday’s price action shows the emerging market currency’s resilience. During the last four days, the pair has remained within the 20.30 – 20.70 area, with momentum slightly tilted to the upside, as depicted by the Relative Strength Index (RSI).
For a bullish continuation, buyers need to reclaim 20.70 before challenging the January 17 high at 20.90. Once surpassed, the next stop would be 21.00, followed by the year-to-date (YTD) at 21.29. On the flip side, sellers are driving the exchange rate below the 50-day Simple Moving Average (SMA) at 20.54, and the pair would be poised to test 20.00, but first bears need to clear the 100-day SMA at 20.22.
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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