The Mexican peso reached its strongest position against the US dollar so far this year on Thursday morning, appreciating to just above 20 to the greenback.
The peso strengthened to 20.05 to the dollar, before weakening slightly to trade at 20.08 to the greenback at 1 p.m. Mexico City time, according to Yahoo Finance.
The 20.05 exchange rate represented a 0.6% appreciation for the peso compared to its closing position of 20.18 on Wednesday, according to the Bank of Mexico.
Thursday morning’s appreciation occurred despite the United States’ implementation of 25% tariffs on imports of steel and aluminum from Mexico and all other countries on Wednesday.
On March 4, the peso depreciated to 21 to the dollar after 25% U.S. tariffs on all Mexican exports took effect. Most of those tariffs were lifted two days later.
On Thursday, the peso appreciated after the United States’ Producer Price Index showed that wholesale price increases slowed significantly in the U.S. in February. The data “strengthens bets” that the United States Federal Reserve will cut interest rates sooner than expected, the El Economista newspaper reported.
However, it still appears unlikely that the Fed will reduce the federal funds rate after its monetary policy meeting next week, or even in May. Reuters reported Thursday that traders are betting on the Fed restarting interest rate cuts in June.
The Mexican peso benefits from the difference between interest rates in Mexico and interest rates in the United States, but the gap has closed due to the Bank of Mexico’s recent monetary policy easing, including a 50-basis-point cut to its key rate last month.
While the peso reached its strongest position this year on Thursday, it is much weaker than it was a year ago.
The almost nine-year high of 16.30 to the dollar that the peso reached last April now seems like a distant memory, given the ample turbulence the Mexican currency experienced after Mexico’s 2024 elections, Congress’ approval of a controversial judicial reform, Donald Trump’s victory in the U.S. presidential election and his subsequent — and many — tariff threats directed toward the United States’ southern neighbor.
The peso remains susceptible to volatility as the United States — easily Mexico’s largest trade partner — adopts a protectionist “America first” approach to its trade relationships with its neighbors and countries around the world.
With reports from El Economista
