Mexican Peso depreciates as Trump's tariff threats boost US Dollar

• Mexican Peso tumbled and hit a daily low of 20.52 as risk aversion boosted the Greenback.
• Mixed US job reports show resilience, with fewer unemployment claims than expected, supporting the US Dollar.
• Traders await FOMC December minutes and Mexico’s CPI data, eyeing insights into future monetary policy and inflation trends.

The Mexican Peso (MXN) was pressured by broad US Dollar (USD) strength on Wednesday, as risk-aversion capped the Mexican currency's advance due to reiterated tariff threats by United States (US) President-elect Donald Trump. This, alongside solid US jobs data, keeps the USD/MXN pair rising and exchanging hands at 20.37, up by 0.29%.

Risk aversion is driving the financial markets after CNN revealed that, according to sources, President-elect Donald Trump is considering “a national economic emergency declaration to allow for a new tariff program.”

The CNN article stated: “In 2019, Trump used the International Economic Emergency Powers Act (IEEPA) to threaten a 5% tariff on all Mexican imports that would rise to 25% if Mexico declined to take action to reduce the number of undocumented immigrants crossing the border with the United States.”

Consequently, USD/MXN jumped in the headlines to a daily peak of 20.52 before retreating to current exchange rates.

Meanwhile, the US economy continues to fare better than expected after the mixed US jobs data release. Although the ADP Employment Change for December fell shy of expectations, the US Department of Labor revealed that the number of people applying for unemployment benefits fell short of estimates.

Federal Reserve (Fed) Governor Christopher Waller stated that he does not anticipate tariffs causing persistent inflation and noted that the labor market is not exhibiting signs of overheating. While he supports additional rate cuts in 2025, he emphasized that the decision would depend on inflation progress.

Meanwhile, USD/MXN traders are eyeing the release of the December meeting minutes of the Federal Open Market Committee (FOMC). Mexico’s inflation data will also be in the spotlight on Thursday, with the release of the Consumer Price Index (CPI) for December, which is expected to continue showing the evolution of the disinflation process.

Daily digest market movers: Mexican Peso dives ahead of FOMC minutes

• Mexico’s inflation in December is expected to drop from 4.55% to 4.28% YoY in headline figures. According to analysts, core CPI is projected to rise from 3.58% to 3.62% YoY.
• In addition, traders will watch the release of the Banco de Mexico (Banxico) December meeting minutes on Thursday.
• According to the US Department of Labor, Initial Jobless Claims for the week ending January 3 fell to 201K from 211K, below estimates of 218K.
• Automatic Data Processing (ADP) revealed that private companies hired 122K people, below the 140K foreseen by economists.
• Interest rate probabilities suggest that the Federal Reserve would cut rates twice during the year, as the December 2025 Fed funds rate futures contract priced in 54 basis points (bps) of easing.

USD/MXN technical outlook: Mexican Peso remains heavy as USD/MXN climbs above 20.35

The uptrend in the exotic pair is expected to continue as the Fed turns slightly hawkish. USD/MXN bulls are leaning to the 50-day Simple Moving Average (SMA) at 20.28, and each of the three times that prices had hit the latter, the pair climbed above the 20.30 mark.

The Relative Strength Index (RSI) shifted bullish, indicating buyers are gathering steam.

If USD/MXN clears the 20.50 price level, the next resistance would be the year-to-date (YTD) high of 20.90, ahead of 21.00, and the March 8, 2022, peak of 21.46. Conversely, if USD/MXN tumbles below the 50-day SMA of 20.28, the next support would be the 20.00 figure, ahead of the 100-day SMA at 19.93, followed by the 19.50 figure.