The Mexican Peso has recently faced some hurdles in its upward trajectory due to concerns about the potential fragmentation of global trade, impacting export-based emerging-market economies like Mexico. Against the US Dollar, the MXN has been fluctuating between gains and losses, influenced by heightened US inflation expectations that are likely to keep interest rates elevated, attracting capital inflows to the Dollar. The current exchange rates stand at 16.77 USD/MXN, 18.11 EUR/MXN, and 21.05 GBP/MXN.
The Mexican Peso saw its momentum stall after the IMF warned of a slowdown in global economic growth due to a potential fragmentation of international trade. This warning came in light of the US imposing additional protectionist measures, such as quadrupling tariffs on Chinese electric vehicles, and other countries like India and Nigeria deciding to settle trades using their domestic currencies instead of the US Dollar. This trend could lead to a retreat from global economic integration, impacting countries like Mexico.
On the other hand, the US Dollar gained ground against the Mexican Peso following data that showed an increase in inflation expectations, reinforcing the likelihood of elevated interest rates in the US. The rise in consumer inflation expectations to 3.3% in April, above the Federal Reserve’s target of 2.0%, reduces the possibility of interest rate cuts in the near future, making the USD a more attractive investment with higher yields.
In terms of technical analysis, the USD/MXN pair has pulled back after breaking below a short-term range, indicating a potential downtrend. Although there has been a slight recovery, the bearish implications of this breakdown suggest further downside for the pair. The short-term trend remains bearish, with targets set at 16.54 and 16.34 if the downward movement continues. Overall, the medium and long-term trends support further downside for USD/MXN.
The value of the Mexican Peso is influenced by various factors such as Mexico’s economic performance, the central bank’s policy, foreign investment, remittances from abroad, geopolitical trends, and oil prices as a key export commodity. Mexico’s central bank aims to maintain low and stable inflation levels by adjusting interest rates accordingly. High economic growth, low unemployment, and high confidence are positive for the MXN, attracting foreign investment and potentially leading to interest rate hikes. Conversely, weak economic data can lead to MXN depreciation.
As an emerging-market currency, the Mexican Peso tends to perform well during periods of low market risks and struggles during times of economic uncertainty or market turbulence. Investors often engage with higher-risk investments during risk-on periods, benefiting currencies like MXN. However, during risk-off periods, investors tend to sell off higher-risk assets and seek safer havens, which can weaken the MXN.
