The Mexican Peso (MXN) continued its downward trend on Thursday, suffering a second consecutive day of losses against the US Dollar (USD) following US President Donald Trump’s executive order imposing 25% tariffs on automobile imports. The USD/MXN pair traded at 20.28, marking a near 1% increase for the Greenback.
Tariffs and Economic Adjustments Impact the Peso
Trump’s signing of the executive order on Wednesday added 25% duties on imported automobiles, effective April 2. This decision sent the Peso into a decline, with USD/MXN reaching a two-week high of 20.36 during Thursday’s session. The US automotive market, worth $474 billion in 2024, heavily relies on imports from Mexico, Japan, South Korea, Canada, and Germany. This move is expected to deepen trade tensions and further weigh on the Peso.
Meanwhile, the Bank of Mexico (Banxico) recently reduced its interest rate by 50 basis points to 9%, with the possibility of further cuts ahead. The central bank noted that Mexico’s disinflation process is progressing, with inflation expected to meet the 3% target by Q4 2026. The current market sentiment is awaiting Banxico’s next policy decision, with analysts predicting another 50 basis point rate cut.
US Economic Data and Fed’s Inflation Gauge
In the US, economic data remains resilient, with initial jobless claims dropping to 224K for the week ending March 22, slightly below expectations. The final Q4 2024 GDP reading confirmed a 2.3% growth rate, up from 1.9%, while Pending Home Sales showed an improvement in February, despite a 3.6% YoY decline. Traders are now focusing on the upcoming release of the core Personal Consumption Expenditures (PCE) Price Index, which will be closely watched as the Federal Reserve’s preferred inflation gauge.
Outlook for the Mexican Peso and Technical Analysis
The Mexican Peso remains under pressure as the USD/MXN pair continues to rise, driven by external factors such as US tariffs. The pair has now reached resistance at 20.35-20.36, where the 50-day and 100-day Simple Moving Averages (SMA) converge. If the resistance level is surpassed, the next targets are the 20.50 psychological mark, followed by the March 4 peak of 20.99 and the year-to-date high of 21.28.
Conversely, a drop below 20.20 could open the door for a retreat towards the 20.00 mark, with additional support seen at the 200-day SMA at 19.72. Market participants remain on edge, awaiting further developments in US-Mexico trade relations and Banxico’s upcoming decisions.
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