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Peso Consolidating 2% Selloff, Discussions Awaited

MEXICO
EM BulletMexicoStoryEmerging Market NewsNorth America
  • The severe opening gap higher for the greenback remains most notable against the Mexican peso, as the risks surrounding potential implications of 25% tariffs are considered. As noted, MXN weakened as much as 3% from Friday’s close, with USDMXN printing a high of 21.2932.
  • The USDMXN rally has stalled amid market participants assessing the potential for negotiations given that Trump will speak with both Canadian & Mexican officials “this morning.” Despite the moderate reprieve for the peso, USDMXN continues to consolidate 2.2% gains on the session, and remains comfortably above the 21.00 mark.
  • A key medium-term parameter for the pair resides at 21.4676, the 2022 high. If the rally were to gather further momentum and broader risk sentiment deteriorate, we would highlight the 2021 high around 22.15, which matches closely with the 61.8% retracement of the 2020-2024 downswing (shown below).
  • Any signs of moderation from the US administration would likely leave the gap to Friday’s closing level of 20.6780 vulnerable.
  • There remains key focus on the Banxico decision later this week, especially given the growing consensus that the committee would opt for a bolder 50bp interest rate cut. Latest developments emphasise this is not a foregone conclusion. Banorte have pointed out that if the impact/market reaction is very adverse, the room to manoeuvre for a larger cut would diminish strongly, forcing Banxico to only cut by 25bps.
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  • The severe opening gap higher for the greenback remains most notable against the Mexican peso, as the risks surrounding potential implications of 25% tariffs are considered. As noted, MXN weakened as much as 3% from Friday’s close, with USDMXN printing a high of 21.2932.
  • The USDMXN rally has stalled amid market participants assessing the potential for negotiations given that Trump will speak with both Canadian & Mexican officials “this morning.” Despite the moderate reprieve for the peso, USDMXN continues to consolidate 2.2% gains on the session, and remains comfortably above the 21.00 mark.
  • A key medium-term parameter for the pair resides at 21.4676, the 2022 high. If the rally were to gather further momentum and broader risk sentiment deteriorate, we would highlight the 2021 high around 22.15, which matches closely with the 61.8% retracement of the 2020-2024 downswing (shown below).
  • Any signs of moderation from the US administration would likely leave the gap to Friday’s closing level of 20.6780 vulnerable.
  • There remains key focus on the Banxico decision later this week, especially given the growing consensus that the committee would opt for a bolder 50bp interest rate cut. Latest developments emphasise this is not a foregone conclusion. Banorte have pointed out that if the impact/market reaction is very adverse, the room to manoeuvre for a larger cut would diminish strongly, forcing Banxico to only cut by 25bps.
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