The Mexican Peso (MXN) continued its downward spiral on Friday, plunging by 1.85% against the US Dollar (USD), as markets reacted to the potential economic fallout from Donald Trump’s presidential victory. Traders are grappling with the prospect of Trump reinstating tariffs on Mexican imports, exacerbating inflationary pressures and disrupting global supply chains. As of the latest trading data, USD/MXN stands at 20.16, highlighting a continued weakening of the Peso.
Trump’s Economic Policies Weigh on the Peso
The mood in global markets remains cautious following the US election results, with investors concerned about Trump’s protectionist stance. Fears that tariffs could be re-imposed on Mexican imports, particularly from China, have raised alarms over potential price increases and supply chain disruptions. Mexico’s Economy Secretary, Marcelo Ebrard, has warned that such tariffs could harm US-based companies, especially those in the automotive sector reliant on Chinese imports.
This economic uncertainty, combined with concerns over global economic conditions, has sent the Peso tumbling. A weaker Peso, alongside risk-off sentiment in the markets due to China’s unclear economic stimulus plans, has added to the volatility of the USD/MXN pair.
Banxico Rate Cut: A Potential Stabilizing Factor
Despite the Peso’s struggles, all eyes are now turning to Mexico’s central bank, Banxico, which is expected to cut interest rates by 25 basis points (bps) in its upcoming policy decision. Inflation in Mexico has gradually softened, with the most recent report showing a decline in underlying inflation from 3.91% to 3.80%, edging closer to the bank’s 3% target. However, the chances of a deeper 50bps rate cut are slim, with Banxico likely to remain cautious in its approach.
Meanwhile, the Federal Reserve’s 25bps rate cut on Thursday has provided little direction on future policy, adding to the uncertainty surrounding the USD. Fed Chairman Jerome Powell noted that while inflation has made progress, the central bank has not yet declared victory over rising prices. This mixed outlook has left investors on edge, with further developments in US economic data expected to shape the next phase for the Peso.
Key Economic Data to Watch
Next week, both the US and Mexico are set to release important economic data, which will likely drive further volatility in the USD/MXN pair. In Mexico, the Consumer Confidence Index, Industrial Production figures, and Banxico’s policy decision will be key indicators. On the US front, inflation reports, Retail Sales, and Fed commentary will be crucial in determining the future trajectory of the US Dollar.
