The Mexican peso appreciated to its strongest position against the US dollar in almost a year on Wednesday, dipping below 19 to the greenback due to a range of factors, including speculation that the United States could soon exempt Mexican steel and aluminum from its 50% tariff.
At 2 p.m. Mexico City time, the peso was trading at 18.92 to the dollar, according to Yahoo Finance!
The peso was even stronger earlier in the day, reaching 18.82 to the dollar.
The last time the peso was stronger was in August last year. The appreciation on Wednesday came after the peso closed at 19.06 to the dollar on Tuesday, according to the Bank of Mexico.
Gabriela Siller, director of economic analysis at Mexican bank Banco Base, said on social media site X that the peso appreciated on Wednesday due to three reasons:
- The expectation that the United States Federal Reserve will cut its interest rate while the Bank of Mexico “could pause” its easing cycle.
- Optimism due to the trade agreement between the United States and China.
- Speculation that United States President Donald Trump could remove the 50% tariff on steel and aluminum from Mexico.
Citing industry and trade sources, Reuters reported on Tuesday that “the United States and Mexico are negotiating a deal to reduce or eliminate President Donald Trump’s 50% steel tariffs on imports up to a certain volume.”
Bloomberg reported earlier on Tuesday that the two countries were “closing in on a deal” that would remove Trump’s tariffs on Mexican steel “up to a certain volume.”
The United States imposed a 25% tariff on all steel and aluminum imports in March, and Trump doubled the duty to 50% last week.
On Wednesday, the U.S. president announced that the United States’ “deal with China is done, subject to final approval with President Xi and me.”
Trump said that the U.S. is “getting a total of 55% tariffs,” while “China is getting 10%.”
He said that the deal also included the supply of magnets and rare earths from China to the United States, and that Chinese students would have access to U.S. colleges and universities.
“Relationship is excellent,” Trump declared.
Mexican financial group Monex said that the peso got a boost from “the optimism of investors, who anticipate a possible trade agreement [on steel tariffs] between Mexico and the United States.”
“Additionally, Trump’s comments about a trade agreement with China subject to the confirmation of Xi Jinping favor an environment of less aversion to global risk,” it said.
In another X post on Tuesday, Siller said that data showing that annual inflation in the United States was 2.4% in May — slightly lower than expected — increased the probability that the U.S. Federal Reserve would cut the federal funds rate, although she didn’t specify how soon. Most economists polled by Reuters believe that the Fed won’t make a rate cut until September.
At 4.42% in May, inflation in Mexico was considerably higher than the rate in the United States.
The Bank of Mexico’s key interest rate is currently set at 8.50%, while the Fed’s rate is much lower at a 4.25%-4.5% range. The significant gap between the two rates is widely seen as benefiting the Mexican peso.
What’s the outlook for the peso?
Siller said that the peso could appreciate to 18.50 to the US dollar this year “if there isn’t aversion to global risk, if Trump removes tariffs on Mexico and if the Fed cuts its [interest] rate while the Bank of Mexico pauses its cycle of interest rate cuts.”
For its part, the bank Banamex said on Tuesday that it estimates a USD:MXN exchange rate of 20.6 in December, which would represent a depreciation of more than 8% for the peso compared to its current position.
Banamex predicted that “noise that could arise” from the start of the USMCA review — which is scheduled for 2026 but could commence this year — will cause the peso to depreciate later in 2025.
