The Mexican peso weakened against a firmer US dollar as renewed doubts over the future of the United States-Mexico-Canada Agreement lifted the trade-risk premium. USD\/MXN was at 17.55, up 0.37%, after rebounding from around 17.49. Donald Trump said he did not want to extend USMCA, while US Trade Representative Jamieson Greer said more time was needed to address issues. Mexico\u2019s Economy Minister Marcelo Ebrard said the US chose not to extend the pact and that it faces an annual review for 10 years. President Claudia Sheinbaum sent a letter seeking to extend the 32-year-old free trade zone for 16 years, subject to agreement by all three countries. <\/p>\n
Mexico\u2019s S&P Global Manufacturing PMI rose to 51.3 in June from 49.6 in May. In the US, ADP private payrolls increased by 98K in June versus 122K in May and a 113K forecast. Challenger job cuts fell 53% from 97,006 to 45,849, while employers announced 443,604 job cuts, 40% less than last year. ISM Manufacturing PMI slipped to 53.3 from an expected 54, and the Prices Paid Index eased to 73 from 82.1, with attention now on Nonfarm Payrolls.<\/p>\n
The renewed uncertainty over the USMCA trade deal is forcing us to add a risk premium to the Mexican Peso. For weeks, the carry trade has been profitable, but political risk is now the dominant factor driving the USD\/MXN pair towards 17.55. This changes the landscape for our positions moving into the summer.<\/p>\n
We have grown accustomed to the yield advantage from Banxico’s policy rate, which has held firm around 11% while the Fed’s is closer to 5.5%, but this buffer is now being tested. This trade deal anxiety is giving a reason for the massive speculative long positions in the peso to be unwound. We are watching positioning data from the CFTC closely for signs of a continued exodus from what has been one of the market’s most crowded trades.<\/p>\n
The scheduled 2026 review of the USMCA was always on the horizon, but these new political comments bring the risk into the immediate present. We are treating this as a structural shift rather than temporary noise. It feels similar to the spike in volatility we saw after the Mexican general election in June 2024, which showed how quickly the peso can drop when political concerns outweigh economic fundamentals.<\/p>\n
Given this rise in uncertainty, we are buying downside protection on the peso through options. Buying USD\/MXN calls or simple MXN puts allows us to hedge our exposure or speculate on further weakness. Implied volatility is rising, so structuring these as debit spreads could be a more capital-efficient way to position for a move higher in the currency pair.<\/p>\n
The upcoming US Nonfarm Payrolls report is now a critical catalyst. A strong jobs number would reinforce bets on another Fed rate hike, further eroding the peso’s rate advantage and likely pushing USD\/MXN through key resistance. This could accelerate the unwinding of the carry trade and send the pair higher.<\/p>\n
From a technical standpoint, we are watching the 17.62 level closely. A sustained break above this trend line would confirm a bullish breakout and signal further gains, prompting us to add to our long USD positions. Conversely, a failure to break this level could see the pair consolidate back towards the 50-day moving average support around 17.36.<\/p>\n\n\n\n