The Mexican Peso (MXN) weakened against the US Dollar (USD) due to a contraction in Mexico’s GDP in Q4 2024, marking the first decline since 2021. The exchange rate stood at 20.41, with a 0.54% increase for the USD.

Mexico’s GDP shrank by 0.6% quarter-on-quarter, lower than the previous year’s growth of 1.1%. The annual growth for 2024 was 1.2%, the worst since 2020.

Banco de Mexico (Banxico) adjusted its growth forecast for 2025 down to 0.6% from 1.2%. This outlook is below the Finance Ministry’s projection of 2.3%.

US economic data showed mixed results, with manufacturing activity improving while the Services PMI fell into contraction. Existing Home Sales and Consumer Sentiment also declined.

Monetary policy divergence between Banxico and the Federal Reserve supports further gains for USD/MXN. President Trump has announced a 25% tariff on cars effective April 2 amid ongoing US-Mexico trade tensions.

Technical analysis indicates that USD/MXN remains in a modestly upward trend. Resistance is evident near 20.40, with potential levels of 20.50 and 21.00 if it breaches.

The MXN’s value is influenced by economic performance, foreign investment, and central bank policies. Additionally, macroeconomic data plays a critical role in shaping the currency’s strength.

A weaker peso following the GDP contraction was expected. With growth slipping into negative territory for the first time in years, markets reacted accordingly. The 0.54% gain in the dollar against the peso reflects this shift in sentiment.

Quarterly contraction of 0.6% is a stark contrast to the growth posted a year prior. Expansion at 1.1% in the same quarter of the previous year gave a sense of stability, but this downward move changes that perception. Full-year growth of 1.2% makes this the poorest result since 2020, reinforcing concerns over slowing economic activity.

Banxico’s revision for next year’s growth underscores a lack of confidence in a swift recovery. The adjustment from a 1.2% estimate to just 0.6% is substantial. Expectations from the Finance Ministry remain higher at 2.3%, but that disconnect raises questions about whether government forecasts are overly optimistic.

Meanwhile, economic results from the United States paint a mixed picture. Manufacturing is showing signs of improvement, but the same cannot be said for services. With the Services PMI dipping into contraction territory, the sector many depend on for stability is not providing reassuring numbers. On top of that, existing home sales declined, a sign of weakness in one of the economy’s most critical sectors. Consumer sentiment also faltered, suggesting that spending and confidence may take a step back.

Differences in policy between Banxico and the Federal Reserve continue to favour the dollar. While markets often follow interest rate decisions closely, broader policy direction plays just as large a role. With disparities between the two central banks growing, it stands to reason that USD/MXN is seeing continued gains.

Trade tensions are another hurdle. Trump’s latest move, a 25% tariff on cars set to begin in early April, marks a serious escalation. Markets do not take these announcements lightly, as they affect both investor sentiment and economic forecasts. With US-Mexico trade conditions worsening, concerns over future relations could weigh on the peso.

From a technical perspective, momentum in the currency pair remains pointed upward. Resistance levels have formed near 20.40, but pressure remains. If that barrier breaks, 20.50 becomes the next point of focus, followed by 21.00. These are numbers that traders will be watching closely, as they mark key areas where movement could accelerate further.

We know that a currency’s strength does not exist in isolation. Its direction is shaped by economic conditions, investor confidence, and central bank policies. This week’s data reinforces that reality, making the coming weeks one to watch closely. Macroeconomic results will continue to shape expectations, and with so many factors at play, developments are likely to be swift.