The Mexican Peso strengthened as the US Dollar fell, influenced by China’s 125% tariffs in response to US tariffs. The USD/MXN rate reached 20.27, reflecting a 0.72% decline, and the US Dollar Index dropped below 100 for the first time since 2021.
Mexico’s industrial production rose by 2.5% month-on-month in February, recovering from a decline in January. Minutes from Banco de Mexico indicated collective concern over economic deceleration, suggesting a likely rate cut at the next meeting.
Us Producer Price Index
The US Producer Price Index decreased to 2.7% year-on-year, while core inflation remained above 3%. Consumer sentiment dropped sharply, and inflation expectations increased for both the one- and five-year outlooks.
The USD/MXN exhibited a downward trend, moving below 20.50, with potential for further decline towards 20.00. However, a rebound past 21.07 could signal a challenge to the year’s high of 21.28.
The recent weakening of the US Dollar, alongside the Mexican Peso’s gain, echoed the broader global reaction to trade tensions sparked by China’s hawkish tariff response. With Beijing imposing levies more than double the previous levels, investors have shifted their expectations on how this bilateral economic friction might reshape currency behaviours. The move fuelled a drop in the US Dollar Index, now languishing below the 100 mark—levels not seen in over three years.
As the USD/MXN pair dipped to 20.27, this 0.72% drop highlights the Peso’s strength, buoyed further by an unexpected bounce in domestic industrial activity. February saw a 2.5% monthly rise, correcting the weakness logged just one month earlier. That uptick alone supports the view that the Mexican economy is showing resilience, though not without hesitations. Banco de Mexico’s most recent minutes confirm this ambivalence. While members noted some recovery, the dominant concern remained focused on slowing economic momentum—so much so that policymakers appear united in their readiness to begin easing.
Inflation Dynamics And Policy
In the US, there’s a growing disconnect between producer prices and consumer belief in future pricing. The latest PPI number slid to 2.7% annually, indicating a possible softening in the cost pipeline. Conversely, core prices have remained sticky above 3%, a detail that can’t be overlooked by anyone relying on predictive data. We’re also seeing household expectations shift uncomfortably. Both the short- and longer-term inflation outlooks climbed, demonstrating that price stability remains unconvincing in the minds of most. Sentiment indicators further complicate matters, as confidence among consumers sank more sharply than forecast—an outcome not conducive to robust spending or risk appetite.
With the USD/MXN below 20.50, we observe a consistent drift in favour of the Peso. The current trend points towards a potential slide nearer to the 20.00 level, which has not been approached since early in the year. While this opens up tactical short-side opportunities, it’s not without measured risk. Any retracement above 21.07 would act as a technical barrier break, giving way to tests around the annual peak of 21.28. Such a shift could prompt rebalancing moves, particularly if accompanied by a shift in posture from either central bank.
We find ourselves tracking both domestic data and broader trade developments, noting how macroeconomic indicators align—or fail to—with monetary policy signals. Volume has thinned somewhat during the market’s latest descent, which often points to hesitation rather than conviction. In these moments, implied volatility metrics can serve as a better guide than raw price movement. Especially as positioning has become more exposed to geopolitical variables, not strictly based on fundamentals.
Trading against a backdrop of mixed inflation dynamics and diverging policy leanings demands precision. Entries near resistance zones should be timed tightly, as reversals could carry substantial drawdown if misjudged. Equally, chasing strength without momentum confirmation has proven unreliable across recent sessions. We keep an eye on US yields and shifting Fed rate expectations, which could serve as catalysts for sudden repricing in dollar-denominated pairs.
Over the coming weeks, alignment between technical formations and macro themes becomes even more essential. With rate decisions on the horizon and sentiment shakier than normal, timing will likely outweigh direction in terms of tactical success.
