Mexican Peso weakens as US-China trade relief and a positive Fed outlook boost the USD

The Mexican Peso (MXN) is trading lower against the US Dollar (USD) during Monday's European session, weighed down by rising demand for the Greenback following a breakthrough in US-China trade talks and ongoing policy easing by Banco de Mexico (Banxico).

At the time of writing, USD/MXN is trading around 19.57, up 0.62% on the day, as investors focus on Thursday’s Banxico policy decision and the broader impact of US tariff policy on Mexican exports.

Greenback Strengthens on US-China Tariff Pause, Pressuring the Mexican Peso

On Monday, the United States and China announced a 90-day suspension of escalating tariffs, providing a temporary reprieve to global trade tensions. The deal has bolstered market sentiment, easing fears of a US-led recession and reinforcing expectations that the Federal Reserve (Fed) may have more room to keep interest rates elevated if economic conditions remain strong.

Meanwhile, Mexico’s economy continues to face pressure from existing US tariffs on aluminum, steel, and automobiles. These 25% import duties have increased the cost of Mexican goods in the US market, threatening competitiveness and straining export-driven industries. Local data and comments from policymakers reflect signs of a broader economic slowdown.

In response, Banxico has pursued a dovish monetary stance, cutting interest rates at six consecutive meetings to support growth and mitigate external pressures. A further 50 basis-point (bps) cut is expected at Thursday’s rate decision, which would further narrow the interest rate differential between Mexico and the US.

Mexican Peso Daily Digest: Trade Optimism and Policy Divergence Overshadow Mexican Output Data

• On Monday, Mexico's Industrial Output for March showed a decline of 0.9% MoM (vs. -1.1% expected), but rose 1.9% YoY (vs. 1.5% expected), marking a recovery from the previous -1.3% contraction.
• Despite the better-than-expected results, Banxico is still expected to cut rates on Thursday due to ongoing economic pressures and the widening policy divergence with the Fed, which continues to push USD/MXN higher.
• With US yields staying elevated and Mexico's policy outlook turning increasingly accommodative, capital flows continue to favor the US Dollar, adding downward pressure on the Peso.
• Over the weekend, US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer met with Chinese Vice Premier He Lifeng in Geneva, where both sides reported progress. He called the talks “candid and constructive,” and the US confirmed "substantial progress" in resetting trade relations.
• The US agreed to cut tariffs on Chinese imports from 145% to 30% for 90 days, providing relief to global supply chains. In return, Beijing agreed to lower tariffs on US goods from 125% to 10% and suspend key retaliatory measures.
• At 14:25 GMT, Fed Governor Adriana Kugler will speak at the NABE-Central Bank of Ireland Symposium in Dublin, with investors watching closely for any policy signals amidst a steady economic backdrop. According to the CME FedWatch Tool, there is a 92.1% probability that the Federal Reserve will keep rates steady at 4.25–4.50% in June, with the first 25 bps rate cut expected in September.
• In contrast, Banxico has cut rates for six consecutive meetings and is expected to continue easing, further narrowing the interest rate differential and exerting pressure on the Peso.

USD/MXN Threatens Resistance, Erases Friday's Decline

USD/MXN remains within a narrow consolidation range above the key support at 19.42, with price action largely sideways in early May trading. The pair is now testing a descending trendline resistance from the April high, closely aligned with the 10-day Simple Moving Average (SMA) near 19.587, which has capped several upside attempts over the past two weeks.

USD/MXN continues to oscillate within a horizontal consolidation zone between 19.42 and 19.65, with multiple candles indicating indecision as bulls attempt to regain short-term control. A breakout above the trendline could signal a bullish reversal, opening the path toward the 23.6% Fibonacci retracement level, drawn from the April 9 high of 21.08 to Monday’s low of 19.42, at 19.81. The 38.2% Fibonacci retracement at 20.05 would be the next resistance level to watch.

USD/MXN Daily Chart