How the Mexican Peso Is Feeling the Chill
The Mexican peso has taken three straight hits against the U.S. dollar. Investors are feeling the heat and the de‑valuation is getting steeper.
Why the Peso is Sinking Even When the Dollar is Down
Imagine this: the dollar itself is in a little dip on Thursday, and yet the peso keeps losing ground. That’s a red flag that something is seriously off with the peso’s confidence. Below are the main reasons behind this downward wobble.
1. Banxico’s Bold Rate Cuts
- Later today, Banxico is expected to cut its benchmark rate by another 50 bp.
- That would bring the rate down to 9% from the current 9.5%, meaning this is the second 50‑bp cut in a row.
- During the last tightening wave, the rate hit a high of 11.25% – a huge swing of 225 bp over the entire cycle.
Lower rates mean cheaper borrowing, which can spark spending but also puts downward pressure on the currency. The peso is already under strain from external factors.
2. You Can’t Ignore the Trade Landscape
- Mexico recorded a two‑billion‑dollar trade surplus in February after a deficit the month before.
- That surplus is a trickle – imports fell sharply, exports didn’t run as wild as we’d hoped.
- Less domestic demand and a slippery auto sector spell trouble for the peso’s stability.
In fact, the car industry is wailing. Automobiles export fell 15.2% in February:
- U.S. shipments dropped 10.7%.
- Other international exports plunged 40.2%.
- And President Trump just announced a 25% tariff on car and auto‑parts imports, adding a new layer of uncertainty.
Bottom Line: The Peso’s Future Looks Punchy
With weak domestic demand, aggressive monetary easing, and the looming trade controversy – especially hitting the auto sector – the peso is in a vulnerable spot. Markets anticipate that the tide may keep turning, raising the chances of more depreciation against the dollar.
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