The Mexican Peso (MXN) is strengthening against the US Dollar (USD) as USD/MXN approaches 20.00, driven by expectations of potential interest rate cuts from the Federal Reserve. Despite disappointing Mexican Industrial Production data, improved risk appetite continues to bolster the MXN.
Mexico’s Industrial Production fell by 0.4% month-on-month in January, while year-on-year it decreased by 2.9%. Economic growth in Mexico is projected at 0.81%, prompting expectations of lower borrowing costs from the Bank of Mexico.
Us Economic Indicators
US data shows factory gate inflation remains unchanged, with the Producer Price Index (PPI) rising by 3.2% year-on-year. Initial Jobless Claims declined slightly to 220,000, surpassing expectations.
Trade tensions continue as Mexico and the US engage in discussions over potential tariffs set to take effect on April 2. The outcome of these negotiations may significantly impact the value of the Mexican Peso moving forward.
In technical analysis, USD/MXN is shifting toward a downward bias, with sellers focused on testing the psychological level of 20.00. If breached, further deceleration could occur, while a breach above 20.20 may maintain the exchange rate in its current range.
The peso is gaining ground against the dollar, with the exchange rate inching closer to 20.00. Some of this strength stems from traders reacting to the possibility that the Federal Reserve could lower interest rates. While economic reports from Mexico have been somewhat disappointing—particularly the decline in industrial output—investors appear to be focusing elsewhere. A preference for higher-yielding assets is keeping demand for the peso elevated.
Looking at recent data, Mexican industrial production slipped in January, both on a monthly and yearly basis. However, expectations for economic growth remain anchored just above 0.8%. That has led many to believe that the central bank may adjust borrowing costs. A potential easing stance from policymakers would influence how the peso trades in the medium term.
On the US front, factory gate inflation seems to be holding steady. The latest data on producer prices shows an annual rise of 3.2%. Meanwhile, jobless claims ticked down slightly, coming in at 220,000. That figure came in lower than expected, though it does little to shift broader expectations for economic activity.
Trade Disputes And Market Impact
Trade disputes between Mexico and the US remain unresolved. With tariffs still on the table and set to come into effect in early April, markets will be watching negotiations closely. Any escalation—or resolution—will have a direct effect on the peso’s standing.
Technically speaking, pressure is building on the exchange rate, with sellers attempting to drive the pair down toward 20.00. If that level gives way, further weakness could follow. However, if buyers manage to push prices above 20.20, the range-bound behaviour seen in recent days may continue.
