Mexican Peso Holds Below 20.00 Despite Renewed US Tariff Threats – March 18, 2025

The Mexican Peso is trading at 19.96 against the US dollar as of 7:16 AM GMT, showing a slight weakening from yesterday’s close of 19.89. This represents a 0.35% depreciation overnight as markets digest the latest US economic data and renewed discussions about tariffs.

The peso had strengthened considerably during Monday’s session, reaching an intraday high of 19.83 before settling at 19.89 by market close. This marked the third consecutive session of peso appreciation, continuing the trend that began last week when the USD/MXN pair broke below the psychological 20.00 level for the first time in 2025.

“Yesterday’s rally was primarily driven by better-than-expected Mexican industrial output figures, which showed a 3.2% year-over-year increase,” noted Miguel Sánchez, FX strategist at Banco Azteca. “The positive data reinforced investor confidence in Mexico’s economic resilience despite ongoing trade tensions with the US.”

Overnight Developments

The peso’s overnight weakness can be attributed to statements from the US Treasury Secretary late Monday that reignited concerns about potential new tariffs on Mexican exports. Additionally, stronger US retail sales data released after market close yesterday has strengthened the dollar against most emerging market currencies, including the peso.

Trading volumes during the Asian session were approximately 32% higher than the weekly average, indicating increased investor interest in the USD/MXN pair amid the current volatility.

Key Market Factors

Tariff Concerns Persist

The White House’s continued commitment to imposing a 25% tariff on steel and aluminum imports remains a significant pressure point for the peso. If implemented on schedule, these tariffs would result in Mexican producers facing nearly 50% cumulative tariffs when exporting to the US market.

“The uncertainty surrounding these tariffs is creating a ceiling for the peso’s appreciation,” explained Carlos Ramírez from CitiBanamex. “While Mexico’s high interest rates provide support, trade tensions continue to limit significant gains.”

Interest Rate Differential

The Bank of Mexico (Banxico) has maintained its benchmark interest rate at 10.25%, significantly higher than the Federal Reserve’s 4.75%. This wide differential continues to attract carry trade investors despite the geopolitical and trade uncertainties.

“The interest rate spread remains favorable for the peso, but investors are increasingly weighing this against potential trade disruptions,” said Ana López, head of emerging markets at BBVA. “We’re seeing a recalibration of risk premiums applied to Mexican assets.”

Technical Analysis

The USD/MXN pair continues to trade within a well-established lateral range, though now testing the lower boundaries of this channel. The key technical levels to watch are:

• Resistance: 20.11 (previous support now resistance)
• Immediate resistance: 20.05 (50-day moving average)
• Support: 19.83 (yesterday’s intraday low)
• Key support: 19.75 (last seen in January 2023)

RSI indicators currently read 48.2, reflecting the market’s neutral position but with slight bearish momentum building. The MACD histogram remains below the signal line, suggesting continued peso strength in the short term, though the convergence is narrowing.

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.

“Institutional investors are cautiously returning to Mexican assets but maintaining higher cash positions than usual given the uncertain trade outlook,” commented Eduardo Torres, investment strategist at BlackRock Mexico.

Market Outlook

Analysts remain divided on the peso‘s near-term prospects. The currency has shown remarkable resilience in 2025, appreciating from levels above 21.18 in early February to the current 19.96, representing a nearly 5.8% gain against the dollar.

“We expect continued volatility in the 19.80-20.20 range over the coming days as markets await more clarity on the tariff situation,” predicted Juan Hernández, chief economist at Grupo Financiero Monex. “Today’s US housing data and tomorrow’s Banxico monetary policy minutes will be crucial in determining direction.”

Traders will be closely monitoring statements from both US and Mexican officials regarding ongoing trade negotiations. They will also be watching this afternoon’s speech by Federal Reserve Governor Lisa Williams, which may provide insights into the Fed’s thinking on interest rates.

Conclusion

The Mexican peso faces a pivotal session today as it consolidates near the 20.00 psychological level. While fundamental factors like high interest rates provide support, trade tensions and dollar strength present significant headwinds. Market participants remain on alert for any official announcements that could trigger a breakout from the current trading range.

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