Mexican Peso Retreats Amid Donald Trump Concerns

The Mexican peso weakened on Wednesday, impacted by speculation that U.S. President-elect Donald Trump might declare a national economic emergency to implement a sweeping tariff strategy.

The exchange rate closed at 20.4164 pesos per dollar, according to Mexico’s central bank (Banxico). This marks a depreciation of 12.12 cents or 0.60% compared to the previous day’s close of 20.2952 pesos. During the session, the dollar traded in a range between 20.3133 pesos and 20.5301 pesos.

USD/MXN

The Dollar Index (DXY), which measures the greenback against six major currencies, rose 0.30% to 109.03 points by the close. Media reports suggested that Trump may declare an economic emergency to push through his tariff plan, causing risk aversion in markets.

Although his transition team has not confirmed this, the uncertainty led to a spike in the dollar, driving it from 20.31 pesos to 20.53 pesos.

Ongoing Depreciation Pressure

The USD/MXN remains vulnerable to Trump’s comments on trade and security. Earlier this week, Trump denied reports that his tariff strategy would target only products critical to U.S. national and economic security, dampening recent optimism in the markets.

Broader Market Impact

The yield on the U.S. 10-year Treasury note reached an eight-month high, fueled by concerns that Trump’s policies could reignite inflation as he seeks to accelerate economic growth.

Expectations of rising inflation supported bets that the Federal Reserve will make fewer interest rate cuts this year. According to CME’s FedWatch tool, the first 25-basis-point cut, to a range of 4.00%-4.25%, is anticipated at the June meeting.

Minutes from the Fed’s most recent policy meeting indicated that most members favor a cautious approach in the coming quarters. While the Fed may slow its pace of tightening, risks of rising inflation remain a significant concern.

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.