“The Mexican peso begins the week with a depreciation against the U.S. dollar, surpassing the 20.6 pesos per unit threshold. This pressure is attributed to a combination of internal and external factors, including uncertainty surrounding international trade tensions and the dollar’s strength following recent U.S. economic data.
The automotive sector, a key pillar of the Mexican economy, is showing mixed performance. While light vehicle production increased slightly by 1.7% year-over-year in January, exports fell by 13.7%, reaching their lowest January level since 2022. The dependency on the U.S. market, which accounts for 83.6% of exports, highlights the sector’s vulnerability to any potential changes in U.S. trade policy.
The decline in exports comes amid rising global trade tensions. The announcement of a 25% tariff on steel and aluminum imports by the U.S. president has raised concerns in the markets and has fueled aversion toward currencies exposed to such conflicts, including the Mexican peso.
On the domestic front, local markets will closely monitor Mexico’s industrial production data, which will be crucial in assessing the health of the Mexican economy.
Additionally, investors will be watching tomorrow’s remarks from Federal Reserve Chair Jerome Powell. A hawkish tone from Powell, signaling a less accommodative stance on U.S. monetary policy, could further strengthen the dollar and add more pressure on the peso. Conversely, a dovish tone could temporarily ease volatility in the Mexican currency.
It is important to note that the recent release of U.S. employment data, which showed a surprise uptick in wages and a decline in the unemployment rate, has bolstered the dollar and reinforced expectations that the Federal Reserve will maintain a cautiously accommodative stance into 2025.
Amid this uncertainty, the Mexican peso faces significant challenges. The combination of trade tensions, the strength of the dollar, and the slowdown in the export sector presents substantial risks for the Mexican currency and the broader economy.”
- Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone
