USD/MXN Analysis: The Mexican Peso Gains Momentum Following Recent Trump Comments

The USD/MXN has fallen more than 2.5% over the last five trading sessions, reaching 19.80 pesos per dollar, a level not seen since November 2024. The pair’s downward trend has been driven by investor distrust in the U.S. dollar, fueled by escalating trade tensions and market anticipation ahead of the upcoming decisions by the FED and the Bank of Mexico next week.

Trade War Escalates

This week, the 25% tariff on steel and aluminum imports to the U.S. officially took effect. In response, the European Union imposed 50% tariffs on American whiskey.

President Donald Trump quickly reacted by threatening to impose tariffs of up to 200% on wine and champagne imported from Europe.

The trade war has become the primary focus of financial markets, yet Mexico has so far adopted a neutral stance. President Claudia Sheinbaum has opted for a measured approach, postponing any decision until April 2, the date by which Mexico successfully delayed the implementation of new tariffs. Until then, the Mexican government will assess whether to take retaliatory measures against the U.S.

This cautious strategy has temporarily shifted market focus away from the trade war involving Mexico and toward Europe, helping to stabilize the Mexican peso in the short term. Additionally, the Mexican government has maintained constant dialogue with the White House, preventing further tariffs from being imposed on Mexico for now.

Meanwhile, growing uncertainty in the U.S. has reignited fears of a possible recession, prompting investors to reduce exposure to the U.S. dollar and seek refuge in other currencies. This is reflected in the DXY index, which measures the strength of the U.S. dollar against a basket of major currencies and has dropped more than 3.8% over the last two weeks.

If the Mexican government’s stability and weakening confidence in the U.S. dollar persist, selling pressure on USD/MXN could continue in the short term.

What to Expect from Central Banks?

Analyzing the policies of the FED and the Bank of Mexico, we see that the U.S. is maintaining a neutral interest rate policy, keeping rates steady at 4.5%, while Mexico has adopted a more flexible approach, lowering its interest rate to 9.5% in its latest decision on February 6.

Source: TradingEconomics

This highlights a clear divergence in monetary policy between the two countries. While the FED remains unchanged, the Bank of Mexico has started a rate-cutting cycle, taking a dovish stance in the short term.

Next weeks will be crucial, with the FED's decision set for Wednesday and the Bank of Mexico's decision on Thursday, March 27.

According to CME Group, there is a 99% probability that the Federal Reserve will maintain its 4.5% rate, keeping policy unchanged.

Source: CMEGroup

On the other hand, market expects the Bank of Mexico to continue cutting rates, with a likely 25-basis-point reduction, as the bank has lowered its economic growth forecast and is seeking to counteract the impact of new tariffs. This could bring the interest rate closer to 9% in the short term.

The interest rate differential now favors Mexico, with a 9.5% rate versus the U.S.’s 4.5%. Although this difference previously had little effect on boosting the Mexican peso, the current context is different. Market fears that high U.S. interest rates combined with the trade war could hurt the U.S. economy, while Mexico's more stable approach could increase demand for the Mexican peso, especially if uncertainty over the U.S. economy continues to grow.

USD/MXN Technical Outlook

Source: StoneX, Tradingview

• Breakout of the Sideways Range: En In the current session, selling pressure has driven USD/MXN below the key support level of 20.11 pesos per dollar, breaking the lower boundary of the sideways channel. If the bearish momentum continues, this breakout could trigger a new downtrend, solidifying the Mexican peso’s short-term strength. However, the current support level remains a critical barrier, where the price could stabilize before continuing its move.

   

• TRIX: The TRIX line remains in a downward slope, having crossed the neutral 0 level. This indicates that selling pressure dominates the market, based on the moving average trend of the last 18 periods. If the TRIX continues to decline, selling pressure could intensify further.

   

• RSI: The RSI line follows a similar pattern, approaching the oversold zone at the 30 level. This suggests that the recent downward move has been very sharp, increasing the likelihood of short-term bullish corrections.

   

   

  Key Levels:

   

• 19.67 pesos per dollar – Major Support: This level aligns with the 200-period simple moving average. If the price drops to this level, it could accelerate the downtrend, strengthening bearish momentum.

   

• 20.11 pesos per dollar – New Resistance: Previously the support level of the sideways range, it now acts as key resistance. This could serve as a retracement point if an upward correction occurs.

   

• 20.42 pesos per dollar – Higher Resistance: Positioned in the mid-range of the previous sideways channel and aligning with the 50-period moving average. If the price returns to this level, it could reactivate the forgotten bullish bias and restore the previous range.

Written by Julian Pineda, CFA – Market Analyst