- Until yesterday, the MXN was among the top performer YTD.
- Trump’s announcement of tariffs to Mexican imports changed everything.
- USD/MXN is having the biggest weekly gain since October.
The USD/MXN pair collapsed as the Mexican peso had the worst day and week since October affected by US President Trump announcement of a 5% tariff on Mexican imports starting June 10 and rising to 25% by October 1 if Mexico doesn’t take action to stop the flow of migrants across the border.
“The surprise nature of this announcement, and record long positioning in the peso, has pushed the largest single session depreciation in MXN since October of 2018, pressuring medium and longer-term yields higher due to risk premium and implications for Banxico“, explained TDS analysts. They expect this matter to be resolved quickly, and likely avoid the imposition of tariffs.
They add project the MXN will eventually recover and trade back towards levels that persisted before the announcement, “though the broad implication of the use of tariffs to achieve political goals may have wider-ranging market impact and hurt risk sentiment.“
From near 19.00, to look toward 20.00
In a few hours, the USD/MXN rose from near 19.00 to 19.82. It then retreated and near the end of the week stabilized around 19.65, to post the highest weekly close since December. Until yesterday, the Mexican peso was the top performer of the year-to-date but that changed with the 3% decline versus the US Dollar today.
The negative tone around Mexican assets could continue and particularly if negotiations next week in Washington show no progress that could lead also to the breakout of the new trade deal (Mexico-Canada-US Agreement). Risk aversion could also weigh on the MXN. If the pair rises further the next barrier is seen at 20.00 and above at 20.20/25 there is a long-term downtrend line.
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