Recent analyses indicate a challenging outlook for the USD to MXN exchange rate due to a combination of internal and external factors influencing both currencies.
The US dollar has recently faced downward pressure, plunging to multi-month lows, driven in part by concerns regarding Federal Reserve independence and prospective interest rate cuts. Following the Senate's approval of Stephen Miran to join the Fed, who is perceived to align closely with President Trump's monetary policy approach, the market anticipates potential rate reductions. Analysts suggest that these anticipated cuts may contribute to further depreciation in the dollar, especially as it approaches critical monetary policy meetings.
Key events affecting the dollar's valuation include the ongoing US-China trade tensions, which, while involving tariff negotiations, could affect sectors vital to the US economy. Furthermore, a shift away from the dollar as a global reserve currency, driven by varied global dedollarization efforts, adds another layer of uncertainty. Notably, the impact of these dynamics on the dollar has already been evident; USD to MXN currently hovers near 90-day lows of 18.29, 2.2% below its three-month average of 18.71, with a trading range of 18.29 to 19.24.
On the other hand, the Mexican peso's performance is influenced by high interest rates maintained by the Bank of Mexico compared to the US. This situation continues to attract investors seeking better returns, thereby supporting the MXN. However, uncertainties surrounding the expiration of the temporary freeze on US tariffs could introduce volatility. Although the peso has recently rallied due to favorable carry trade conditions, analysts project a modest decline in the currency over the next year as the effects of these expiring tariffs take hold.
Additional economic considerations include Mexico's disappointing economic growth, evidenced by a 0.7% decline in the Global Indicator of Economic Activity, alongside political developments post-election that may raise regulatory concerns. As such, while some forecasts suggest continued support for the peso due to interest rate differentials, the overall sentiment reflects a cautious outlook for both currencies, contingent upon evolving economic indicators and geopolitical developments.
