Market Analysis by Quasar Elizundia, Expert Research Strategist at Pepperstone
January 24, 2025 –
“The Mexican peso has recently shown relative resilience against the US dollar, recording marginal gains in a context marked by political uncertainty and the release of key economic data in both economies.
Markets are in tense anticipation of potential statements from President Trump regarding the imposition of 25% tariffs on Mexican imports, a measure that, according to his latest comments, could be implemented starting February. This tariff threat casts a shadow of uncertainty over markets, generating volatility and caution among investors.
In the United States, the release of initial unemployment claims has delivered unfavorable signals. The unexpected increase to 223,000 claims, surpassing market expectations of 220,000 and representing the largest rise in six weeks, suggests a potential weakening of the labor market. This data, along with the rise in continuing claims to 1,899,000, the highest level since November 2021, indicates that unemployed workers are facing greater difficulties returning to the labor market.
This scenario, if it materializes into a weaker labor market, could influence the Federal Reserve to adopt a less restrictive monetary policy stance later in 2025, which, in theory, could favor the Mexican peso.
On the other hand, in Mexico, mid-month core inflation reached 3.72%, exceeding forecasts, while general inflation declined at a faster-than-expected pace. However, the persistence of core inflation above the Bank of Mexico’s target could somewhat limit the room for future rate cuts. This situation could provide relative support to the peso by keeping the returns on peso-denominated assets attractive. Nonetheless, the weakness of local economic data, particularly in consumption and investment, generates short-term uncertainty about the currency’s trajectory.
Moving forward, the Mexican peso’s direction will be closely tied to two main factors. First, the evolution of trade policies between the United States and Mexico, especially regarding the potential imposition of tariffs. The implementation of 25% tariffs on Mexican imports would represent a significant shock to the Mexican economy, exerting strong pressure on the peso.
Second, the performance of domestic economic data, including economic activity, GDP growth, and, crucially, the monetary policy decisions of the Bank of Mexico. A weakening of economic activity could pressure the peso, while a less moderate stance by the central bank, in response to persistent inflation, could offer it some support.”
Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone