USD/MXN Update: Mexican Peso Weakens Sharply Ahead of “Liberation Day”

Despite showing a slight pullback in yesterday’s session, the USD/MXN has posted a gain of more than 2.3% over the past seven trading sessions, favoring the U.S. dollar. The broader picture continues to show that bullish momentum is dominant, as the greenback gains ground against the Mexican peso, driven by uncertainty over tariffs announced by the White House and their potential short-term impact on the Mexican economy.

Liberation Day

Today marks the so-called “Liberation Day,” announced by President Donald Trump, who stated that new tariffs would officially come into effect during this session, potentially hitting countries like Mexico particularly hard.

Under this scenario, the long-standing 25% tariff threat on Mexican goods is expected to be formalized. In addition, an additional 25% tariff on vehicles and auto parts has been proposed, which would have a direct impact on Mexico’s automotive industry. Agricultural products imported from Mexico may also be targeted, though no specific rate has been confirmed yet.

This day could prove to be a turning point in the trade tensions escalated by the United States in recent weeks. Markets remain on edge, as the White House is expected to formalize new tariff measures that could affect its relationship with Mexico. In response, President Claudia Sheinbaum has taken a cautious stance, stating that she will wait for official announcements before responding. However, she has not ruled out the possibility of retaliatory actions, which could escalate bilateral tensions and fuel further market uncertainty.

In recent weeks, this entire situation has significantly deteriorated investor sentiment around the Mexican economy. Just yesterday, Mexico’s Ministry of Finance revised its 2025 GDP growth projection to a range of 1.5% to 2.3%, a downgrade from the 2% to 3% forecast published in October 2024.

If the White House confirms a more aggressive tariff stance, confidence in Mexico’s outlook could deteriorate further. This would not only weigh on growth expectations but could also deepen the bearish sentiment toward the peso, sustaining the bullish pressure on USD/MXN that has remained intact in recent weeks.

 

What About Business Confidence?

Mexico’s Business Confidence Index has shown a clear downward trend since March 2024, when it stood at 54.3. The recent drops have been more severe, with the latest reading falling to 49.9—its lowest level since May 2021. This suggests that, although sentiment had already been weakening, the trade conflict has accelerated the decline.

 

Source: Tradingeconomics

 

The recent erosion in confidence reflects market fears over the 2025 economic outlook. A deteriorating sentiment could lead to a decline in foreign investment, weakening demand for the peso. If the index fails to show signs of recovery, USD/MXN may continue facing buying pressure in upcoming sessions.

 

USD/MXN Technical Outlook

 

Source: StoneX, Tradingview

 

• Sideways Range: Over the past two months, price action has remained within a neutral channel, with a ceiling at 20.84 pesos per dollar and a floor at 20.00 pesos. So far, price movements have not been strong enough to break this formation, and the pair remains in the middle of the range, indicating a neutral bias with no clear short-term direction.

   

• Possible Bullish Channel: Since March 18, the pair has begun to recover significantly, once again breaking above the 20-peso mark. This movement has started to outline a short-term bullish channel, which could gain relevance if buying pressure continues in the coming sessions.

   

• ADX: The ADX line has stayed slightly below the neutral 20 level, suggesting a lack of momentum strong enough to establish a clear trend. However, if the line approaches or crosses the 20 mark, this would indicate growing technical relevance in the recent bullish move.

   

  Key Levels:

   

• 20.8432 – Main resistance: Located at the top of the broader range. Price action near this level could reinforce the current bullish structure.

   

• 20.4097 – Key mid-range zone: Positioned in the middle of the neutral channel and aligned with the 50- and 100-period moving averages. Price consolidation here may strengthen the market’s neutral sentiment.

   

• 19.9521 – Relevant support: This level marks the lower boundary of the range. If price action returns to this area, it could threaten the recent bullish setup and open the door to stronger bearish moves.

 

Written by Julian Pineda, CFA – Market Analyst