Mexican Peso ends week strong as USD plunges on China tariff retaliation

• Mexican Peso gains as China retaliates with 125% tariffs, sending the US Dollar Index below 100 for the first time since 2021.
• Banxico minutes show unanimous concern over decelerating growth; rate cut likely at next meeting.
• US data mixed: PPI cools but remains elevated; sentiment slumps and inflation expectations jump.

The Mexican Peso ends the week on a higher note as the Greenback weakens across the board. The China-US trade war escalated, with China retaliating against US President Trump’s latest tariffs announcement. The USD/MXN trades at 20.27, down 0.72%.

The financial markets’ narrative remains around tariffs. China’s answer to US 145% was known early in the North American session, with Beijing applying 125% duties on US products. After the headline, the buck plunged sharply, as revealed by the US Dollar Index (DXY), which tracks its performance against a basket of six other currencies. The DXY reached an over 30-month low of 99.01. As of writing, the DXY is at 99.87, down more than 1%.

Mexico’s Industrial Production improved in February, revealed the Instituto Nacional de Estadística Geografía e Informática (INEGI). Meanwhile, Banco de Mexico (Banxico)’s last meeting minutes revealed that all its members said the economy is decelerating and the disinflation process has evolved.

Regarding tariffs, Mexican products outside of the USMCA trade agreement remain subject to 25% duties, despite the 90-day pause on other countries, revealed a White House official.

Data from the United States (US) revealed that the Producer Price Index (PPI) dipped compared to February’s data. The Core PPI cooled as well but remained above the 3% threshold.

Other data showed that the Consumer Sentiment deteriorated sharply and inflation expectations rose.

Although the USD/MXN is dropping, further upside is seen. Banxico is expected to lower rates at the upcoming meeting. In contrast, the Fed would likely hold rates unchanged at the May meeting, with investors seeing the first cut in July.

Daily digest market movers: Mexican Peso unfazed by high US yields, risk aversion

INEGI revealed that Mexico’s Industrial Production in February rose by 2.5% MoM, up from a -0.6% contraction in January. In the twelve months to February, production improved from a -2.9% contraction to -1.3% YoY.

Banxico Governor Victoria Rodriguez Ceja appeared before the Senate. She said the Government Board is still unsatisfied with the inflation rate, which stood at 3.8% YoY in March, though far from the 3% target. She added that the disinflation process and the economic slowdown justify Banxico’s dovish approach and hinted that the central bank might continue easing policy.

US Consumer Sentiment fell sharply in April, with the University of Michigan Index dropping from 57.0 to 50.8. Inflation expectations jumped, with the 1-year outlook rising from 5% to 6.7% and the 5-year from 4.1% to 4.4%.

US March PPI eased to 2.7% YoY, below the 3.3% forecast and down from 3.2%, signaling softer input costs.

Core PPI held firm at 3.3% YoY, down from 3.5%, yet still above the 3% threshold.

USD/MXN technical outlook: Mexican Peso appreciates as USD/MXN falls beneath 20.50

The USD/MXN uptrend remains in play, though sellers stepped in, dragging the spot price below the 20.50 figure. Towards the end of the session, bears drove the exchange rate below the confluence of the 50-day and 100-day Simple Moving Averages (SMAs) near 20.33/36, which, if surpassed, clears the floor to test 20.00.

Conversely, if USD/MXN climbs past the April 9 daily peak of 21.07, the pair could be poised to challenge the year-to-date (YTD) high of 21.28.

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