Mexican Peso defies gloomy data, rockets higher on USD weakness

Mexican Peso advances as USD/MXN plunges below 19.90, down over 1%.
The Peso shrugs off Mexico’s weak industrial output and declining consumer confidence fueling recession concerns.
US consumer sentiment plunges amid rising inflation expectations, driven by upcoming Trump administration tariffs.

The Mexican Peso (MXN) rallied against the US Dollar (USD) on Friday, ignoring softer-than-expected economic data revealed during the week that suggests the economy might slow down. A deterioration of consumer sentiment in the United States (US) exerted pressure on the Greenback, which is poised to finish the week with losses. The USD/MXN trades at 19.86, down more than 1%.

The market mood turned buoyant, a tailwind for the emerging market currency. Dismal reports in Consumer Confidence and Industrial Production in Mexico paint a gloomy economic outlook, further confirmed by Banco de Mexico (Banxico) Director of Economic Research Alejandrina Salcedo Cisneros.

She commented that uncertainty is impacting the country’s business, hinting at an outlook for a moderate expansion of regional economies. Banxico estimated economic contraction in all regions of the country. Nationwide, growth declined -0.6 % in Q4 compared to the previous quarter in seasonally-adjusted figures.

In the US, the University of Michigan (UoM) Consumer Sentiment Index registered a dismal print, while inflation expectations aimed higher due to US President Trump’s tariffs.

Traders' eyes are on next week’s Federal Reserve (Fed) policy decision. Last Friday, Fed Chair Jerome Powell revealed that “market measures of inflation expectations have moved up, driven by tariffs.”

Next week, traders will look at Retail Sales, housing data, the Fed’s monetary policy decisions and economic projections.

Daily digest market movers: Mexican Peso surges as the Greenback weakens

Mexico's Industrial Production plunges to -2.9% YoY, worse than December’s -2.7% fall alongside a deterioration on Consumer Confidence suggests the Mexican Peso could depreciate despite the ongoing gains observed that are mostly due to overall US Dollar weakness.
The economy in Mexico is slowing down sharply as projected by private analysts polled by Banco de Mexico (Banxico). They expect growth at 0.81%.
Banxico is expected to continue easing policy at the March 27 meeting spurred by the evolution of the disinflation process and a stagnant economy.
On Wednesday, Mexican Finance Minister Edgar Amador Zamora said the national economy is expanding but shows signs of slowing down linked to trade tensions with the US.
The University of Michigan (UoM) Consumer Sentiment survey showed that in March, sentiment deteriorated from 64.7 to 57.9, below the forecast of 63.1. Notably, inflation expectations jumped with Americans seeing 12-month inflation rise from 4.3% to 4.9%. Over a five-year period, consumers saw prices running at 3.9%, up from 3.5%.
Money market futures traders had been priced in 67 basis points of easing by the Fed toward the end of the year, down from 74 a day ago.
A Reuters poll showed that 70 out of 74 economists say the risk of recession has risen in the US, Canada and Mexico.
In the boiler room, trade disputes between the US and Mexico remain front and center. If the countries reach an agreement, it could pave the way for a recovery of the Mexican currency. Otherwise, further USD/MXN upside is seen as US tariffs could trigger a recession in Mexico.

USD/MXN technical outlook: Mexican Peso surges as USD/MXN collapses below 20.00

The USD/MXN finally cleared the 20.00 figure, hitting a fourth-month low of 19.84 earlier during the North American session. Momentum favors further downside on the pair as depicted by the Relative Strength Index (RSI) turning bearish and closing into oversold territory. Hence, the path of least resistance is tilted to the downside.

The USD/MXN first support would be the 200-day Simple Moving Average (SMA) at 19.67. If surpassed, the next stop would be the 19.50 figure, ahead of the September 18 swing low of 19.06. For a bullish resumption, the pair’s first ceiling level is 20.00. A decisive break will expose the 100-day SMA at 20.35.

Mexican Peso FAQs

What key factors drive the Mexican Peso?

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

How do decisions of the Banxico impact the Mexican Peso?

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

How does economic data influence the value of the Mexican Peso?

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

How does broader risk sentiment impact the Mexican Peso?

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.