The Mexican Peso (MXN) has been navigating a period of volatility, recently stabilizing around 20.5 per US dollar (USD). This level is precariously close to the three-year low of 20.85, a threshold repeatedly tested since early 2025. Persistent inflationary pressures and concerning GDP figures have solidified expectations for further monetary easing by Mexico’s central bank, Banco de México (Banxico). Adding to the economic headwinds is the looming threat of renewed tariffs from the United States, injecting significant uncertainty into Mexico’s economic outlook.
Mexico’s headline inflation rate climbed to 3.74% in mid-February. While this figure matched forecasts and remained within Banxico’s target range, it still signals ongoing price pressures. Simultaneously, the Mexican economy experienced a contraction of 0.6% in the fourth quarter of the previous year. This marked the steepest decline in GDP since the third quarter of 2021, highlighting a concerning slowdown in economic activity.
In response to these economic indicators, the minutes from Banxico’s recent policy meeting indicated a potential openness to a substantial 50 basis points interest rate cut as early as March. This would be contingent on favorable inflation trends. However, policymakers also stressed the necessity for flexibility in monetary policy, particularly in light of the external risks associated with US trade relations. The potential imposition of tariffs by the US remains a significant concern for the Mexican economy.
Mexico is currently engaged in intensive diplomatic efforts to avert the implementation of a 25% tariff by the United States. The Mexican government is working to convince the Trump administration, ahead of the March 4 deadline, that its enhanced border security measures and intensified crackdown on fentanyl trafficking are yielding tangible results. While some progress in these discussions has been reported, a complete reversal of the threatened tariffs appears unlikely at this juncture. The potential impact of these tariffs on the Mexican economy, and consequently on the Mexican Peso, remains a key point of concern for investors and economists alike.
Looking ahead, market analysts anticipate continued pressure on the Mexican Peso. Trading Economics global macro models project the USDMXN exchange rate to reach 20.97 by the end of the current quarter. Furthermore, their models estimate a further depreciation to 21.86 within a 12-month timeframe. These forecasts reflect the prevailing concerns surrounding inflation, economic growth, and the external trade risks facing Mexico, all of which contribute to the ongoing uncertainty surrounding the Mexican Peso’s valuation in the global currency market.
