Markets Expect Uncertainty Around US Tariffs
Market Analysis by Quasar Elizundia, Expert Research Strategist at Pepperstone
March 04, 2025 –
“The Mexican peso started the month with a strong performance against the dollar, trading near 20.45 units and registering a 0.5% appreciation. This rebound was mainly due to weak economic data in the United States, where the manufacturing PMI fell to 50.3, below expectations. This deterioration in orders, production, and employment supported expectations of a less aggressive policy from the Federal Reserve, impacting the dollar and benefiting the peso.
However, the situation in Mexico presents factors that could limit this strength. The Global Indicator of Business Confidence (IGOEC) for February declined by 1.4 points, settling at 50.1, and recorded a yearly drop of 4.9 points. Although it remains above the 50 threshold, the decline points to a significant deterioration in business sentiment. Similarly, the manufacturing PMI contracted to 47.6, marking its eighth month in negative territory and the sharpest decline in five months. Export demand experienced its biggest drop in nearly four years, particularly affecting the automotive sector and highlighting the fragility of the external environment.
The weakness in internal indicators could reinforce expectations that Banxico may resort to new rate cuts. While this aims to stimulate the economy, it could put downward pressure on the peso. However, the persistent signs of a slowdown in the United States—reflected in the contraction of orders and production—increase the likelihood of a less restrictive stance from the Federal Reserve, which would provide some support to the Mexican exchange rate.
Under this outlook, peso volatility is expected to remain high, with back-and-forth movements driven by the evolution of macroeconomic data. The deterioration in business confidence and the contraction in local manufacturing contrast with the weakness of the dollar, creating an uncertain environment. Investors remain attentive to any signs of changes in monetary policies from both countries, as these will determine the peso’s direction in the short term.”
Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone