The Mexican Peso (MXN) finds itself at a crossroads as it navigates a complex landscape of economic indicators and trade policies. Over the last 18 days, the USD/MXN exchange rate has consolidated within the 20.20–20.70 range, reflecting an ongoing uptrend. The stability of the Peso hinges on various macroeconomic factors, including economic growth, employment rates, and investor confidence. Meanwhile, uncertainties surrounding trade policies under the Trump administration and retreating U.S. yields following weak PMI data have further complicated the outlook for the MXN.
Macroeconomic data releases play a crucial role in assessing the health of Mexico's economy and influence the valuation of the Mexican Peso. A robust economic framework characterized by high growth rates and low unemployment is beneficial for the MXN, bolstering its strength in international markets. However, recent data indicate a dip in business confidence. The index fell by 1.4 points, slipping from 51.5 to 50.1. Despite this decline, the index has maintained expansion for 25 consecutive months above the critical 50 threshold, highlighting a sustained period of growth.
Inflation remains a pivotal factor in Mexico's economic equation. The country's central bank, Banxico, often resorts to raising interest rates to curb high inflation, making borrowing more expensive for consumers and businesses alike. This strategy aims to temper demand and stabilize the overall economy. As of now, inflation is projected to conclude at 3.71%, slightly down from previous estimates of 3.83%, while the core Consumer Price Index (CPI) is set to end at 3.75%.
The USD/MXN exchange rate's trajectory could alter significantly based on various technical indicators. For a bearish continuation, the pair must clear the 100-day Simple Moving Average (SMA) at 20.30. Should buyers drive the rate past 20.50, they will need to surpass the recent peak of 20.71 recorded on February 6 before challenging the high of 21.28 seen on February 3.
Manufacturing activity in Mexico has shown resilience, with February's figures increasing to 52.7 from January’s 51.2 and surpassing forecasts of 51.6. This uptick underscores a positive trend in a sector vital to the country's economy. In contrast, Banxico's poll suggests a tempered GDP growth forecast of 0.81% for 2025, down from an anticipated 1%.
The Mexican Peso tends to perform well during risk-on periods when investors are less concerned about market risks and more inclined towards high-risk investments. As a major oil exporter, Mexico's economic fortunes are closely tied to oil prices, which act as a catalyst for the MXN.
Economists foresee a slight depreciation of the Peso against the U.S. Dollar by the end of 2025, with projections placing the USD/MXN rate at 20.85, down from an earlier estimate of 20.90. However, looking further ahead to 2026, analysts anticipate a more pronounced decline beyond the 21.30 mark expected in January's poll.