Insights 
VT 
The Mexican Peso reached a new yearly high against the US Dollar, with USD/MXN trading at 19.28, a decrease of 0.18%. Mexico’s economic calendar was empty ahead of key data releases like April’s Retail Sales, Q1 GDP, and mid-month inflation figures.
In the US, the Federal Reserve officials were in focus alongside anticipation of a Tax bill vote, impacting the Dollar’s strength. The US Dollar Index fell by 0.31% to 100.07, reflecting broad weakness.
Economic Projections For Mexico
April Retail Sales in Mexico are projected to decline to 0.1% MoM, with annual improvement to 2.2%. GDP growth for Q1 2025 is expected to rise by 0.2% QoQ, with inflation projected to increase by 4.01% YoY. Banco de México recently suggested room for a rate cut after reducing rates to 8.50%.
Moody’s downgraded US government debt due to fiscal concerns, contributing to Dollar pressure. Concerns arise from inflation expectations, with Fed officials commenting on the impact of tariffs and trade tensions on price stability.
USD/MXN trends bearishly, aiming to test the 19.00 mark, with RSI indicating oversold conditions. Key supports lie at 18.50 and 18.00, while reclamation of 19.50 would challenge resistances at 19.53 and 19.90.
Banxico, Mexico’s central bank, preserves the Peso’s value through monetary policy, typically adjusting interest rates to manage inflation. Its policies are influenced by the US Fed, meeting eight times annually.
Traders And Market Dynamics
With the Peso continuing to strengthen against the Dollar, hitting a high for the year, traders have been presented with a short-term directional move that may begin to flatten or even reverse as the pair nears the psychological support at 19.00. The drop in USD/MXN below 19.30 isn’t just a figure on the screen — it reflects the confluence of local policy signals and broader Dollar weakness. The latest move from Banxico suggesting potential for another rate cut is a key element here, especially when seen against the backdrop of the Fed’s monetary tightening and growing fiscal worries.
The US Dollar has been under pressure, with the Dollar Index steadily retreating, largely thanks to uncertainty surrounding internal fiscal policy and softer Federal Reserve language. These two elements — less hawkish Fed tones and recent ratings concerns — have dampened the Greenback’s momentum. The downgrade, while symbolic in some respects, draws a definite line under the growing anxiety about the long-term sustainability of America’s fiscal decisions. That shift is now being priced in more overtly by both currency and rate traders. We can observe that across multiple G10 currencies, but nowhere more clearly, this week, than against the Peso.
Fed officials’ remarks about potential inflation spikes due to tariff threats are a rare acknowledgment — less politically filtered and more direct. If tariffs increase, cost-push inflation becomes likelier. That complicates rate decisions ahead, and traders have been pivoting accordingly. It has helped to stretch the divergence in central bank expectations vis-à-vis Mexico, where recent data has been softer but not weak enough to cinch in a series of rate cuts.
Keep in mind, April’s retail sales out of Mexico are forecast to rise only marginally on an annual basis, while GDP estimates point to a small pickup, consistent with a still-resilient but slowing economy. Layer that with inflation ticking above 4%, and the room for Banxico to ease aggressively becomes narrower — even as its last move already gave the market a signal it may lean dovish in coming meetings. That’s not a full shift in stance but more a calibrated move designed to stay responsive without flooding the market with liquidity, which could destabilise the Peso.
From a positioning viewpoint, USD/MXN remains in a downward channel with RSI suggesting the pair may be stretched on the short side. Technically, a breach towards 19.00 could trigger light profit-taking, though we should be prepared for opportunistic selling on any bounce toward 19.50. For those managing option exposure or delta-hedging along that corridor, this creates a narrow but defined range in which implied vol might drift slightly lower unless data surprises dramatically.
We’re watching 18.50 and 18.00 for next support levels — not because they are mechanically important, but because they haven’t been properly tested this year. If macro data from Mexico remains firm while US indicators soften, particularly in employment or inflation readings, those levels may come into focus swiftly. Conversely, any sharp reversal in Treasury yields or rehardened rhetoric from Powell and his colleagues could lift USD/MXN toward upper resistance nearer 19.90, especially if Mexican inflation underperforms expectations.
What’s also worth noting is the correlation between Peso resilience and interest rate differentials. That spread — between Mexican and US benchmark yields — has shrunk slightly, but remains wide enough that carry remains attractive. That doesn’t make long Peso positions invulnerable to shocks, especially if global risk sentiment turns, but it still supports a bias that selling USD rallies remains a more rewarding stance — at least in the current vol regime.
For the next few weeks, it will be vital to keep a close read on the measured signals from Banxico. We’ve seen this bank act defensively before when inflation edges up. Its meeting structure — eight per year — enforces a rhythm that traders can get ahead of by reading inflation, retail sales, and GDP as triage indicators. If one of them sharply deviates, expect recalibrations both in pricing of front-end rates and via Peso forwards, before spot catches up.
Ultimately, the market is treating the Peso with a level of steadiness that hasn’t always been the case — but that is conditional. Any notable US risk-off sentiment, possibly triggered by a further impasse on fiscal legislation or worsening inflation expectations, remains the clearest threat to unwind recent Peso gains. So, it’s best to stay nimble with clear technical levels set and respond dynamically to data releases rather than anchoring to any fixed stance.
