Mexico’s Peso Falters Amid $4.55 Billion Trade Deficit and Looming U.S. Tariffs

The Mexican peso opened March 4, 2025, at 20.75 per dollar, reflecting growing concerns over U.S. tariffs and Mexico’s economic struggles.

President Donald Trump confirmed that 25% tariffs on Mexican imports would take effect today, fueling market uncertainty. Traders responded by favoring the U.S. dollar as a safe haven, pushing the peso lower overnight.

Mexico’s January trade deficit widened to $4.55 billion, while Q4 GDP contracted by 0.6%, marking the sharpest decline in four years. Weak manufacturing data and falling business confidence added to the peso’s woes.

This contrasts sharply with December 2024, when Mexico recorded a $2.57 billion surplus. The 5.9% year-over-year increase in imports, which reached $49 billion, drove the deficit. This was fueled by higher purchases of both oil and non-oil products.

In contrast, exports rose by 5.5% year-over-year to $44.4 billion, with notable growth in non-oil shipments (+8.7%). However, oil exports declined sharply by 40.6%, and automotive exports fell by 17%.

This reflects weaker demand from the United States and other markets. On March 2, the currency fluctuated between 20.41 and 20.54 before closing at 20.47, with subdued trading volumes reflecting investor caution.

Mexican Peso Under Pressure

Market analysts noted that the looming tariffs could severely impact Mexico’s export-driven economy, further weakening the peso. Banxico is widely expected to cut interest rates by 50 basis points this month if inflation remains under control, potentially adding more downward pressure on the currency.

Global sentiment toward emerging markets remained cautious due to geopolitical risks and broader economic uncertainties. This limited inflows into peso-denominated assets and ETFs.

Peso-focused funds saw minimal activity, with investors hesitant to take new positions ahead of tariff implementation. Technical indicators showed a bullish bias for USD/MXN, with resistance levels at 20.50 and 20.93 and support at 20.30 and 20.00.

Momentum indicators suggested further upside potential if resistance levels are breached. However, any positive developments in U.S.-Mexico trade talks could quickly reverse this trend.

The peso’s depreciation highlights its vulnerability to external shocks and domestic economic weakness. Market participants will closely watch for updates on tariffs and upcoming economic data for signs of stabilization or further volatility in the USD/MXN pair.