- The Mexican peso is recovering as China’s 5% GDP growth for 2024 boosts global sentiment.
- Reviving the EU-Mexico trade agreement ahead of Trump’s inauguration boosts peso optimism.
- The IMF and World Bank expect modest growth in Mexico in 2025 and point to domestic and US political risks.
The Mexican Peso (MXN) is seeing a rebound after falling to a new yearly low of 20.93 and is rising against the US Dollar on improved risk appetite following upbeat GDP numbers in China. The USD/MXN peso pair is trading at 20.72, down 0.38%.
During the Asian session, China announced that its GDP rose by 5% in 2024, meeting the government’s target for this year. Other data showed that industrial production in China exceeded retail sales while the unemployment rate rose.
As a result, risk-sensitive currencies such as the Mexican peso rose. The peso continued to rise after a Reuters report that the European Union and Mexico revived a stalled free trade agreement on Friday, days before Donald Trump’s inauguration.
Meanwhile, the International Monetary Fund and World Bank updated their forecasts for the Mexican economy. The former estimates growth of 1.4% in 2025, while the latter forecasts a slightly optimistic increase of 1.5%. The two institutions stated that the economy faces risks, such as uncertainty over recently approved reforms and Trump’s return to the White House.
Next week, the Mexican economic calendar will contain retail sales and inflation data for mid-January and the GDP and economic activity index for November.
Daily Market Movers Summary: Mexican peso advances as traders await Trump’s inauguration
- The Mexican peso shrugs off concerns ahead of Trump’s inauguration as USD/MXN falls below 20.80.
- However, the Mexican currency is not out of the woods. The divergence between the Bank of Mexico (Banxico) and the Federal Reserve (Fed) indicates that there is more upside in USD/MXN ahead.
- Economists polled by Reuters revealed that the gross domestic product will grow by 1.2% in 2025, compared to 1.6% last year. In addition, they expect the Bank of Mexico (Banxico) to cut interest rates by at least 150 basis points to 8.50% by the end of the year.
- In the Fed’s latest Summary of Economic Expectations (SEP), officials estimate they will cut interest rates by 50 basis points.
- US industrial production rose 0.9% on the month, above estimates of 0.3%, crushing November’s 0.2% expansion.
- Money market futures are priced in for 42.5 basis points of federal interest rate cuts in 2025, according to CME FedWatch Tool data.
USD/MXN Technical Forecast: Mexican Peso rises as USD/MXN falls below 20.80
The USD/MXN pair continues to decline after hitting a new yearly high of 20.93. Momentum remains bullish as shown by the Relative Strength Index (RSI), but expect a test of the 50-day Simple Moving Average (SMA) if the pair drops below 20.50. A break of the latter would expose the 50-day SMA at 20.36, before challenging the 100-day SMA at 20.02.
Conversely, if buyers push the USD/MXN above 20.90, this could pave the way towards reaching the psychological barrier at 21.00. If broken, the next resistance will be the March 8, 2022 high at 21.46, followed by 21.50 and the psychological level of 22.00.
Frequently asked questions about the Mexican Peso
The Mexican Peso (MXN) is the most widely traded currency among its counterparts in Latin America. Its value is widely determined by the performance of the Mexican economy, the policy of the country’s central bank, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans living abroad, especially in the United States. Geopolitical trends can also move the Mexican peso: for example, offshoring – or the decision by some companies to move manufacturing capacity and supply chains closer to their home countries – is seen as a catalyst for the Mexican currency as the country is a major manufacturing hub in the Americas. . Another catalyst for the Mexican peso is oil prices as Mexico is a major exporter of this commodity.
The main goal of the Mexican Central Bank, also known as Banxico, is to keep inflation at low and stable levels (at or near its 3% target, the midpoint of the 2% to 4% tolerance range). To this end, the Bank sets an appropriate level of interest rates. When inflation is too high, Banxico will try to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the economy as a whole. Higher interest rates are generally a positive for the Mexican Peso (MXN) because they lead to higher returns, making the country a more attractive place for investors. Conversely, low interest rates tend to weaken the Mexican peso.
Macroeconomic data releases are key to assessing the state of the economy and can have an impact on the valuation of the Mexican Peso (MXN). A strong Mexican economy, based on high economic growth, low unemployment, and high confidence, is good for the Mexican peso. Not only does it attract more foreign investment, it may encourage the Bank of Mexico (Banxico) to increase interest rates, especially if this force is accompanied by higher inflation. However, if economic data is weak, the value of the Mexican peso is likely to decline.
As an emerging market currency, the Mexican peso tends to do its best work during periods of risk, or when investors view broader market risk as low and are therefore keen to take on higher-risk investments. Conversely, the Mexican peso tends to weaken in times of market turmoil or economic uncertainty as investors tend to sell riskier assets and flee to more stable safe havens.
