Market Analysis by Quasar Elizundia, Expert Research Strategist at Pepperstone
January 28, 2025 –
“The Mexican peso starts the week amid turbulent waters, facing a confluence of headwinds. While the trade balance for December 2024 showed a surplus of $2.567 billion, exceeding market expectations, the currency remains under pressure, trading near multi-year lows. This behavior reflects a palpable uncertainty regarding trade tensions with the United States and domestic economic challenges.
The tariff threats from the U.S. administration, although revoked in Colombia’s case, remain in place for Mexico. The potential imposition of tariffs starting February 1 introduces a factor of significant volatility. As the current scenario highlights, U.S. trade policy stands as a key determinant for the peso’s short-term trajectory. This reliance, evidenced by 84% of Mexico’s non-oil exports being destined for the U.S. market, exposes the national economy to the swings of political decisions north of the border.
Beyond external factors, domestic economic data presents a mixed picture. While the December trade surplus is a positive indicator, the annual deficit reached $8.2 billion, a 50% increase from the previous year. Exports grew 4.1% year-over-year, driven mainly by the manufacturing sector, with notable performance in machinery and mining metallurgy. However, the 14% drop in oil exports, caused by pressured prices and exported volumes, underscores the importance of a diversified export basket. Notably for the markets, imports rose by 9.1% year-over-year.
Looking ahead, two factors stand out as crucial. First, the Federal Reserve’s (Fed) decision on interest rates. A hawkish stance by the Fed would strengthen the U.S. dollar, putting additional pressure on the peso. Conversely, a less restrictive monetary policy could provide temporary relief for the Mexican currency.
Second, the release of Mexico’s GDP data will be key to evaluating the economy’s resilience against external pressures. Robust growth could mitigate uncertainties, while disappointing economic development would exacerbate pressures on the peso.
In conclusion, the Mexican peso stands at a crossroads.The persistent threat of U.S. tariffs, combined with a rising annual trade deficit, creates an uncertain environment that negatively impacts the currency. The evolution of the Fed’s monetary policy and Mexico’s GDP performance will be decisive in shaping the peso’s direction in the coming days.”
Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone