The Mexican Peso (MXN) has surged to its strongest level in 10 months against the US Dollar (USD), reflecting a broad-based weakening of the Greenback amid shifting fiscal, trade, and macroeconomic dynamics.
On Wednesday, the USD/MXN currency pair dropped to multi-week lows near 18.90, marking a key milestone in the Peso’s recent rally, which has seen the pair decline by nearly 3% this month. This article presents Servelius‘s broker’s expert take on the complexities of the subject.
This decline in the USD/MXN exchange rate underscores growing investor confidence in Mexico’s economic prospects and an erosion of confidence in the USD, driven primarily by persistent US fiscal uncertainty and ongoing trade negotiations between the United States and Mexico.
US Dollar Weakness Pressures USD/MXN
The US Dollar’s extended losses have been catalyzed by a resurgence of concerns around US fiscal policy. During testimony before the House Ways & Means Committee, US Treasury Secretary Scott Bessent highlighted the contentious debate over extending tax cuts and the potential implementation of so-called “revenge tariffs” targeting foreign companies.
This debate has intensified worries about the sustainability of US fiscal policy and the country’s ballooning structural deficits.
This fiscal uncertainty is weighing heavily on the US Dollar, leading to a broad-based selloff. As the USD weakens, emerging market currencies like the Mexican Peso tend to benefit due to improved risk sentiment and relatively attractive domestic fundamentals.
Advanced US–Mexico Trade Talks Fuel Peso Strength
Another key driver underpinning the Peso’s rally is the ongoing US–Mexico trade negotiations. Both nations are reportedly engaged in advanced discussions aimed at easing recent tariff tensions, particularly related to the US’s decision to raise tariffs on global steel imports from 25% to 50% on June 4.
Mexico filed for an exemption shortly after the tariff hike, and discussions are reportedly focusing on implementing a quota-based system. Under this proposal, a defined volume of Mexican steel could enter the US at a reduced tariff or duty-free, potentially providing relief to Mexican exporters. However, critical details, including the exact size of the quota and the tariff rates, remain under negotiation with no formal framework finalized yet.
The risk of retaliatory tariffs remains a pressing concern, as Mexican officials have warned of countermeasures if a resolution is not reached soon. This ongoing uncertainty keeps market participants alert to headline-driven volatility, but the prospect of a trade deal is providing a positive backdrop for the MXN.
Key Technical Levels and Market Momentum
From a technical perspective, the USD/MXN pair broke below the psychological support level of 19.00, falling beneath the important 61.8% Fibonacci retracement of the July–February rally at 19.01. This break confirmed a bearish continuation pattern with the pair currently trading near 18.90, the lowest since August 2024.
Further technical analysis shows that the USD/MXN has encountered dynamic resistance near the 10-day and 20-day Simple Moving Averages (SMA) at 19.17 and 19.25, respectively. These SMAs have repeatedly capped upward price action since early May, reinforcing the prevailing downward momentum.
A decisive daily close below 18.60 could open the door for additional declines toward 18.40, accelerating bearish momentum if two key factors align:
- US Treasury yields continue their retreat, lowering the USD’s appeal as a safe-haven currency.
- The Banco de México (Banxico) signals readiness to ease monetary policy despite elevated inflation, bolstering the Peso further.
Should the pair recover above 19.01, it would neutralize immediate bearish pressure, but a sustained break above the 20-day SMA at 19.25 is necessary to suggest a broader trend reversal. If this occurs, traders may look to targets at 19.44 and 19.57, where important Fibonacci levels and moving averages converge, providing strong resistance.
Outlook: What to Watch Next
The near-term outlook for USD/MXN remains skewed toward further Peso strength, particularly if:
- The US fiscal landscape remains uncertain, preventing a meaningful rebound in the USD.
- US–Mexico trade talks continue progressing, reducing tariff risks.
- Banxico confirms its willingness to ease monetary policy while managing inflation.
- Technical support levels hold, and downside momentum accelerates.
In summary, the Mexican Peso’s rise to 10-month highs reflects a complex interplay of weaker US Dollar dynamics, positive trade negotiation signals, and mixed but improving Mexican macroeconomic fundamentals. The evolving situation demands close attention to both headline risks and technical price action as traders position for the next major move in USD/MXN.
