The Mexican peso strengthened as softer-than-expected US labour data pushed the US dollar lower, with added pressure from market chatter about Japanese FX intervention. USD/MXN was at 17.48, down 0.43%, while the US Dollar Index (DXY) fell 0.55% to 100.85. June Nonfarm Payrolls slowed to 57K from 129K, and earlier data were revised down, cutting April and May job gains by 74K. The unemployment rate dipped to 4.22% from 4.3%, alongside lower labour force participation, and money markets priced a 66% probability of a rate rise at the 16 September meeting, implying almost 17 basis points of tightening, according to Prime Terminal data.
Trade policy also stayed in focus after indications the US does not plan to extend the USMCA as a 16-year rollover was possible on Wednesday; instead, the pact is expected to face annual reviews for 10 years. Data cited by Bloomberg showed intraregional trade exceeding $1.6 trillion in 2024, compared with $1 trillion in 2020, and the three economies together represent nearly a third of global GDP. In technical terms, USD/MXN traded around 17.4818, holding above a triple SMA cluster near 17.3656, with RSI (14) at 53.6 and resistance levels referenced from 18.1651 and 21.0808.
US Labour Data and Dollar Weakness Drive Peso Gains
We are seeing the Mexican Peso strengthen against the US Dollar, trading around 17.48 following a surprisingly weak US jobs report. The Nonfarm Payrolls number came in at just 57,000 for June, a sharp drop from expectations and a sign the US economy might be cooling faster than anticipated. This softness in the American labor market immediately puts pressure on the dollar.
This data creates a direct conflict with market expectations for the Federal Reserve. Despite the weak employment figures, money markets are still pricing in a 66% chance of a rate hike in September. Historically, a jobs report this poor, especially with downward revisions to prior months, would almost certainly take a rate hike off the table, suggesting the market may be mispriced or is waiting for more data.
Trading Implications and USMCA Uncertainty
Adding another layer of risk is the political uncertainty surrounding the USMCA trade agreement. The US decision not to extend the deal introduces significant doubt for the over $1.6 trillion in annual trade between the members. This long-term risk could easily outweigh short-term interest rate advantages and will likely keep the Peso from appreciating too much further.
For derivative traders, this environment is ripe for volatility, not clear direction. We believe options strategies that profit from price swings, such as buying straddles or strangles on USD/MXN, are prudent for the coming weeks. The technical support around 17.36 and strong overhead resistance create a range, but the fundamental news from both the Fed and trade negotiations could cause a sharp breakout.
The key catalyst to watch will be the next US inflation report. If inflation remains high, it could force the Fed to follow through on its hinted rate hike, sending the dollar higher despite the weak jobs data. Conversely, a soft inflation print would likely cause hike expectations to collapse, leading to a much weaker dollar and a stronger peso.
