The Mexican peso depreciated to 21 to the US dollar on Tuesday morning after 25% U.S. tariffs on Mexican exports took effect just after midnight.
The peso weakened as much as 1.5% during Tuesday morning trading to reach 21.002 to the dollar, according to Reuters. That was the weakest position for Mexico’s currency since early February when the peso declined to nearly 21.30 to the dollar ahead of an earlier planned commencement date for the U.S. tariffs.
The Mexican Peso has finally begun to react to US tariff news, but price action is still laughably tiny. Peso is down 2% versus the Dollar, which is nowhere near the 25% tariff. Markets implicitly assume Mexico will cave on any and all US demands, so tariffs get lifted quickly… pic.twitter.com/2d4ybB2rFv
— Robin Brooks (@robin_j_brooks) March 4, 2025
At 1 p.m. Mexico City time, the peso had strengthened from its earlier position and was trading at 20.75 to the dollar — still weaker than its closing position on Monday.
The depreciation of the peso on Thursday morning extended losses for the currency to a fourth consecutive trading session.
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 has declined more than 20% against the greenback in the last 11 months.
Mexico sends just over 80% of its exports to the United States, meaning that the 25% tariffs will have a major impact on the Mexican economy and could trigger a recession, especially if they remain in place for an extended period of time. President Claudia Sheinbaum said Tuesday that she will announce retaliatory “tariff and non-tariff measures” on Sunday.
According to Reuters, Lee Hardman, a senior currency economist with the MUFG financial group, “said the peso’s initial moves had been relatively modest, considering the scale of the U.S. duties that both Mexico and Canada are now saddled with.”
“The price action suggests that market participants remain hopeful that the tariff hikes won’t remain in place for long, helping to limit trade and economic disruption,” Hardman said.
“We continue to believe that both currencies [the peso and the Canadian dollar] could fall by around 5-10% in response to more persistent tariff hikes,” he said.
La amenaza de aranceles de Estados Unidos no ha terminado. La siguiente semana, el miércoles 12, entran en vigor los aranceles del 25% al acero y aluminio, que serán adicionales a los aranceles generales ya implementados.
— Gabriela Siller Pagaza (@GabySillerP) March 4, 2025
Gabriela Siller noted on Tuesday that an additional 25% U.S. tariff on steel and aluminum exports is still scheduled to take effect next Wednesday.
Gabriela Siller, director of economic analysis at Banco Base, said on X that “if the tariffs continue” the peso will depreciate further “because the flow of foreign currencies to Mexico will be affected, short and long-term economic growth will be compromised and the risk of” Mexico losing its investment grade credit rating “will increase.”
In another post, she said that “the atmosphere feels like the pandemic” because “nobody knows what’s going to happen and how long [the tariffs] will last.”
The duties were imposed on Mexican and Canadian goods due to what the White House said was a failure by Mexico and Canada to take adequate action against “the influx of lethal drugs” to the U.S.
Clark Geranen, chief market strategist at CalBay Investments, said in a note on Tuesday that “while Tuesday’s tariffs are a go, it remains very unclear on just how long these tariffs will remain.”
“We tend to believe these are more of a negotiation tactic and not the start of a long and drawn out reciprocal trade war. Still, in these situations, investors sell first and ask questions later, as seen during Monday’s selloff,” he said.
Mexican Stock Exchange declines
Reuters reported Tuesday morning that stocks had fallen in Mexico for a fourth consecutive day. The benchmark index of the Mexican Stock Exchange “slid to its lowest in five weeks, with local equities still up over 3% year to date,” the news agency said.
Stock markets in the United States also fell after Trump’s announcement on Monday that the tariffs on Mexico and Canada were going ahead.
“Black day for the capital markets,” Siller said on X on Tuesday morning above a chart showing that the Dow Jones, the S&P 500 and other stock indexes were in negative territory.
With reports from Reuters, El Financiero and Milenio
