- Mexican peso remains weak after Trump’s tariffs announcement.
- USD/MXN tests Friday’s top as it holds to gains, near 20.00.
- Mexico studies options to respond to US tariffs, including retaliation.
The USD/MXN rose during the American session to test Friday’s top. It failed to break above 19.82 but is trading around 19.75, holding more than 3% above the level it had a week ago. The Mexican peso is for the second day in-a-row the worst performer as it remains under pressure affected by US tariffs.
US President Trump announced a 5% tariff, rising to 25% by October, to all Mexican imports if Mexico does not take clear action to stop the flow of illegal immigrants. Mexican President López Obrador today reiterated that they don’t want confrontation and still consider the US and Trump friends. At the same time, Mexican officials are considering ways to respond, including possible retaliation. Still, they prefer to negotiate. Mexican Foreign Secretary is in Washington for negotiations.
Trade tensions between the US and China, and now also Mexico, continue to affect risk sentiment across financial markets. “We think the global backdrop remains very negative for EM. Rising tariffs pose significant risks to global growth and trade. We expect both China and Mexico to retaliate further in the coming days. At this point, a potentially more dovish Fed and ECB (amongst many others) is simply not enough to help EM get any traction”, said Win Thin, Global Head of Currency Strategy at Brown Brothers Harriman.
Data from the US released today came in below expectations. “The outlook in the manufacturing sector fell to its lowest point since October 2016 as the lengthening US trade dispute with China forces a reconsideration of global and national economic growth”, said Joseph Trevisani, FXStreet Senior Analyst. More recently, comments from Fed’s Bullard who mentioned interest rate cuts may be warranted soon on risks, weakened the US dollar but USD/MXN held near the highs.
Regarding data, the key report in Mexico will be on Friday with inflation numbers. The CPI is expected to rise 4.37% y/y vs. 4.41% in April, according to Win Thin. “With the peso coming under greater pressure and tariffs pushing local prices up, any notions of easing have been put to bed. As if there weren’t enough things to worry, Banxico now must grapple with the stagflationary risks from the US tariffs. Next policy meeting is June 27, no change is expected then“, he added.
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