The Mexican peso has recently strengthened to 20.24 pesos per U.S. dollar, recovering from a low of 20.81 pesos per dollar, its weakest since July 2022. This improvement happened mainly because investors reacted positively to Mexico’s central bank, Banxico, lowering its key interest rate by 0.25%, bringing it down to 10.25%.
The bank decided to help reduce inflation (the general price increase) while keeping monetary policy tight due to the ongoing risks of rising prices. This move gave investors confidence, especially since Banxico aims to reduce inflation to 3% by the end of 2025.
Peso Faces Trade Risks
Meanwhile, the U.S. Federal Reserve needs to be clearer about future interest rate hikes, which have weakened the U.S. dollar. A weaker dollar indirectly benefits the peso, making it relatively stronger.
However, there are concerns about potential changes in trade policies. Some speculate that Robert Lighthizer could return as the U.S. Trade Representative under Donald Trump. Additionally, if the Republican Party gains control of Congress, they might introduce higher import tariffs. These developments could pressure the peso by affecting trade between the U.S. and Mexico.
J.J Edwards is a finance expert with 15+ years in forex, hedge funds, trading systems, and market analysis.
