The Mexican peso weakened 0.84% to 19.6294 per dollar after a US–China tariff truce bolstered the dollar, local industrial output contracted, and markets brace for Banxico’s policy decision.
Puerto Vallarta, Mexico – The Mexican peso opened weaker on Monday morning, trading at 19.6294 per US dollar, following a broad rally in the greenback after the United States and China agreed to a temporary tariff truce. According to data released by the Bank of Mexico (Banxico), the peso declined by 16.25 cents, or 0.84 percent, from Friday’s official close of 19.4669 per dollar.
Market participants noted that the peso’s loss of ground chiefly reflected a surge in demand for US assets after the two largest economies paused their tit-for-tat tariffs for 90 days. The Intercontinental Exchange’s Dollar Index (DXY), which weights the greenback against six major currencies, jumped 1.26 percent to 101.60, its highest level since late April. In intraday trading, the dollar fluctuated between a low of 19.4206 and a high of 19.6659 pesos.
Over the weekend, negotiators in Washington and Beijing concluded discussions that yielded a temporary ceasefire in the trade conflict. Under the deal, the United States will roll back tariffs on certain Chinese goods to 30 percent from more than 100 percent, while China will reduce duties on US imports to 10 percent. Although the agreement represents only a partial rollback of the measures imposed since 2018, it removes one of the biggest uncertainties in global markets, spurring investors to increase exposure to US Treasuries and other dollar-denominated assets.
“Traders had been on edge awaiting clarity on the US–China trade relationship for days,” said Monex Grupo Financiero analysts. “While the truce eases fears of further escalation, it also underpins confidence in the US economy and drives demand for dollars.” This shift in market sentiment was directly reflected in the peso’s decline at the opening of trading on Monday.
Domestically, the peso was also pressured by weaker industrial output. Data from the National Institute of Statistics and Geography (INEGI) showed that Mexico’s industrial activity contracted by 0.9 percent month-on-month in March, although it still posted a 1.9 percent gain compared to March 2024. The monthly contraction marked the first back-to-back decline since late 2023, underscoring lingering weakness in manufacturing, construction, and utilities.
“The Mexican peso is being affected by a strengthening dollar due to increased demand for US assets, while local industrial production figures showed a monthly contraction,” the Monex analysts added. “Investors are digesting both external and internal factors, which has led to increased volatility in the peso.”
Attention now turns to Banxico’s monetary policy decision later this week. With headline inflation showing a slight uptick in April and the economy exhibiting signs of slowing, market consensus favors a 50-basis-point rate cut to 8.50 percent. Analysts at MetAnalisis pointed out that the central bank may opt for a moderate reduction to support growth without letting inflationary pressures resurface.
“There will be several important US economic data releases on Thursday, including retail sales and industrial production,” MetAnalisis noted. “Banxico’s announcement is also expected that day, and despite the bounce in April inflation, they could reduce the key rate by 50 basis points to 8.50 percent. This would reflect a cautious easing cycle designed to shore up domestic demand.”
Investors are likely to front-run any signals from Banxico regarding the trajectory of interest rates. If the bank delivers a dovish surprise by cutting more aggressively or signaling further rate cuts, the peso may rebound. Conversely, any indication that Banxico intends to hold rates steady for longer could exacerbate the peso’s recent weakness.
Global central bank policy divergence remains a key driver of exchange-rate moves across emerging markets. While Banxico edges toward monetary easing, the US Federal Reserve has signaled a more hawkish stance, with Fed Chair Jerome Powell emphasizing the need to keep rates restrictive until inflation firmly returns to the 2 percent target. This has widened the interest-rate differential in favor of the dollar, providing additional support for the greenback.
Looking ahead, traders will also monitor incoming US inflation data and the outcome of China’s upcoming quarterly economic assessment. Any signs of renewed tensions in the US–China relationship, or indications that China’s growth is faltering, could trigger further shifts in global capital flows and impact the peso. On the domestic front, the release of April’s consumer price index and retail sales figures next week will offer fresh clues about the strength of household spending and inflationary pressures in Mexico.
As markets digest this week’s calendar of events, the peso remains vulnerable to swings in risk sentiment and policy expectations. Should the US–China truce endure beyond the initial 90-day window, and if Banxico proceeds with a measured easing cycle, the peso could stabilize in the 19.50–19.80 range. However, any breakdown in trade talks or an unexpected hawkish tilt from Mexico’s central bank may drive the currency back toward the 20-peso threshold.
With both external and internal factors at play, currency strategists caution against underestimating the potential for sharp intraday moves. “The peso’s reaction to the US–China news underscores just how sensitive it is to shifts in global risk appetite,” said one foreign-exchange strategist at a major bank. “This week’s Banxico decision will be the next big test for the peso, and we could see renewed volatility around the announcement.”
For now, the peso’s depreciation on Monday serves as a reminder that even temporary improvements in the trade outlook can trigger meaningful moves in emerging-market currencies. As the week unfolds, investors will be closely watching whether the greenback maintains its recent strength or gives back some of its gains in response to evolving policy narratives on both sides of the border.
The Mexican peso weakened 0.84% to 19.6294 per dollar after a US–China tariff truce bolstered the dollar, local industrial . . .
