Mexican Peso Defies Dollar Strength, Hits 20.00 as Markets Anticipate Modified U.S. Tariff

As of 7:05 AM GMT on March 25, 2025, the Mexican Peso is trading at approximately 20.00 pesos per US Dollar, showing a slight strengthening from yesterday’s close of 20.0587.

This represents a 0.29% appreciation for the peso, continuing the positive momentum seen in recent trading sessions amid evolving trade discussions between Mexico and the United States and anticipation of Banco de México’s (Banxico) upcoming monetary policy decision.

On Monday, March 24, the Mexican Peso staged a notable recovery against the US Dollar, appreciating by 0.90% (18.18 cents) to close at 20.0587 pesos per dollar from the previous session’s 20.2405.

This strengthening came despite the Dollar Index (DXY) rising by 0.17% to 104.27 points, indicating the peso’s outperformance against other major currencies.

The peso’s appreciation was primarily fueled by weekend reports suggesting the Trump administration might adopt a more measured approach to tariffs in its next round, with possible exclusions for several sectoral tariffs set to take effect on April 2.

Overnight Developments

Overnight trading saw the peso continue its upward trajectory, reaching the current 20.00 level as investors responded positively to signals that US-Mexico trade tensions might be easing.

Asian markets exhibited cautious optimism as traders evaluated new statements from US policymakers regarding potential modifications to the tariff implementation timeline.

Market Factors and Analysis

Trade Relations: The primary driver for peso movements remains the developing situation surrounding US tariffs. Reports that the Trump administration may not implement its full package of threatened tariffs on April 2 have provided significant support for the peso. However, the OECD recently warned that sustained US tariffs could trigger a recession, potentially causing Mexico’s economy to contract by 1.3% in 2025.

Banxico Decision: Market participants are positioning ahead of Banco de México’s monetary policy meeting scheduled for March 27. Analysts widely expect Banxico to cut rates, with the Citi Mexico Expectations Survey showing most analysts anticipate interest rates to end at 8% in 2025, down from previous forecasts of 8.25%.

Capital Flows: ETF flows data indicates a modest $87.3 million inflow into Mexico-focused funds over the past week, representing the second consecutive week of positive flows after three weeks of outflows in February. However, this remains well below the January 2025 weekly average of $142 million.

Economic Data: Mexico’s inflation for the first half of March was reported at 3.67% annually, slightly below expectations. This reinforces expectations for Banxico‘s monetary easing.

Technical Analysis

The USD/MXN pair is currently showing mixed signals. After bouncing from its yearly low of 19.84 reached on March 14, the pair encountered resistance around the 20.30 level, which aligns with the 100-day Simple Moving Average at 20.35. The recent move below 20.00 suggests selling pressure on the dollar and renewed strength for the peso.

The Relative Strength Index (RSI) has been declining, moving away from the neutral line, which could signal potential for further peso strength if the trend continues. With USD/MXN now testing the 20.00 support level, a break below could open the path toward the year-to-date low of 19.84.

Key support levels remain at 20.00 and the recent year-to-date low of 19.84, while resistance is found at 20.30, followed by the 100-day SMA at 20.35 and the 50-day SMA at 20.40.

Market Commentary

“We’re seeing increased confidence in the peso this morning as it breaks through the psychological 20.00 level,” states Carolina Rodríguez, head of EM currency trading at International FX. “With Banxico’s decision just two days away, traders are positioning for potential rate cuts against a backdrop of improving trade rhetoric.”

Eduardo Torres, investment strategist at BlackRock Mexico, notes: “Institutional investors are cautiously increasing their peso exposure given the improving trade outlook. The peso‘s continued strength despite mixed global signals speaks to underlying confidence in Mexico’s fundamentals.”

“Today’s trading volumes reached $950 million in early Asian and European sessions, below the $1.5 billion weekly average but showing typical pre-Banxico decision caution,” reports J.P. Morgan’s FX desk. “We’re seeing growing appetite for peso-denominated assets as trade tensions appear to be easing.”

Looking Ahead

All eyes will be on Banxico’s monetary policy decision on March 27, with the market pricing in a 25 basis point cut that would bring the benchmark rate to 10.25%.

Additionally, traders will closely monitor any statements from US officials regarding tariff implementation details ahead of the April 2 deadline.

The peso has shown remarkable resilience in 2025, appreciating from levels above 21.18 in early February to current levels, representing a nearly 5.8% gain against the dollar during that period.

The current trend suggests further strengthening may be possible if trade negotiations continue to progress positively and Banxico maintains a balanced approach to monetary policy in the coming days.

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