“The Mexican Peso weakened against the US Dollar following disappointing domestic economic data. In January, Mexico’s trade balance recorded a deficit of USD 4.558 bn, in contrast to the USD 2.567 bn surplus in December. This deterioration was driven by a decline in non-oil exports and a widening deficit in oil-related trade. Exports grew by 5.5%, but oil exports fell sharply. Imports grew by 5.9%, with intermediate goods rising by 10.4%, signaling a potential recovery in industrial production.
Adding to the peso’s struggles, the country’s strong reliance on the US economymakes it vulnerable to uncertainties regarding trade partnerships. These results are likely to cloud the near-term outlook for the Mexican economy and, by extension, the Mexican peso.
Meanwhile, the unemployment rate rose slightly month-on-month to 2.7% but showed a slight improvement on an annual basis. The informality rate remained high at 54.2%, reflecting structural weaknesses in the labor market that could weigh on economic growth. The industrial sector added 420,000 jobs, reflecting a possible strength driven by growth in manufacturing exports, which may help offset some of the economic headwinds.
Across the border, the US economy continues to show resilience. The second estimate of Q4 GDP growth was in line with expectations. In addition, the price index for gross domestic purchases and the price index for personal consumption expenditures (PCE) were revised up by 0.1 percentage points. This reinforces the narrative of a hawkish Fed, painting a bearish outlook for the peso.
In addition, the US durable goods orders rose by 3.1%, reversing two consecutive monthly declines, with transport equipment reporting a substantial 9.8% increase. Moreover, excluding defence orders, new orders rose by 3.5%, suggesting that private demand played a significant role in this advance. These results suggests increased business and consumer confidence, which could stimulate economic momentum and further delay expectations of rate cuts from the Fed.
Looking forward, the Mexican peso is likely to remain under pressure as investors carefully monitor geopolitical and economic developments.
Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone
