Mexican Peso Appreciates Amid Tariffs and Lower-than-Expected US Inflation

The Mexican peso slightly appreciated against the US dollar on Wednesday, despite the implementation of 25% tariffs on US steel and aluminum imports and weaker-than-expected US inflation data. The currency traded at 20.2050 units per dollar, up 0.27% from the previous day's LSEG reference rate. Banorte expects the peso to oscillate between $20.15 and $20.33.

The Mexican peso (MXN) exhibited unexpected resilience against the US dollar (USD) on Wednesday, despite the implementation of 25% tariffs on US steel and aluminum imports and weaker-than-expected US inflation data [1]. The currency traded at 20.2050 units per dollar, representing a 0.27% appreciation from the previous day's LSEG reference rate [2].

Banorte, Mexico's largest bank, anticipates the peso to oscillate between $20.15 and $20.33 [3]. This forecast contrasts with the market's initial expectations of further depreciation, given the unfavorable economic conditions.

The US Federal Reserve (Fed) minutes from the December meeting revealed that some participants saw merit in maintaining rates at current levels, citing the risk of persistently high inflation [1]. This dovish stance, combined with reiterated tariff threats by US President-elect Donald Trump, initially pressured the Mexican peso. However, the currency managed to recover, possibly due to the resilience of Mexico's economy and the expectation of continued inflationary pressures.

The US economy, on the other hand, continues to perform better than anticipated. Although the ADP Employment Change for December fell short of expectations, the number of people applying for unemployment benefits decreased more than expected [1]. These mixed signals suggest that the US economy remains robust, which could support the US dollar.

Despite the current market conditions, Banorte remains optimistic about the Mexican peso's prospects. The bank attributes this confidence to Mexico's strong economic fundamentals and the expectation that the US and Mexico will eventually reach a mutually beneficial trade agreement.

In conclusion, the Mexican peso's resilience against the US dollar on Wednesday defied expectations, given the unfavorable economic conditions. Banorte's outlook for the currency remains positive, driven by Mexico's strong economic fundamentals and the expectation of a trade agreement between the US and Mexico.

References:
[1] FXStreet. Mexican Peso tumbles as Trump's tariff threats boost US dollar. https://www.fxstreet.com/news/mexican-peso-tumbles-as-trumps-tariff-threats-boost-us-dollar-202501081750
[2] FXStreet. Mexican Peso (MXN) to US Dollar (USD) Exchange Rate. https://www.fxstreet.com/currency-exchange/mexican-peso-to-us-dollar/current
[3] Reuters. Mexican peso seen oscillating between $20.15 and $20.33 - Banorte. https://www.reuters.com/business/finance/mexican-peso-seen-oscillating-between-20-15-and-20-33-banorte-2022-01-05/