Mexican Peso weakens as US strength and policy split boost the Dollar

• Mexican Peso edges lower as strong US outlook fuels Dollar buying
• US–China tariff truce lifts global sentiment, adding support to the US Dollar
• USD/MXN pushes toward key resistance after erasing recent losses
• Banxico is expected to cut rates again on Thursday, deepening policy divergence

The Mexican Peso is trading lower against the US Dollar on Monday, as renewed US growth optimism and ongoing policy divergence continue to weigh on emerging market currencies.

At the time of writing, USD/MXN is trading around 19.59, up 0.78% on the day, after breaking above descending trendline resistance and the 10-day Simple Moving Average (SMA). 

The move comes as markets digest the implications of the US–China trade truce, elevated US yields, and expectations for Banxico to deliver its seventh consecutive rate cut on Thursday. Despite a stronger-than-expected Mexican industrial output report for March, the Peso remains pressured by external headwinds and narrowing interest rate differentials.

Greenback strengthens on US–China tariff pause

On Monday, the United States and China announced a 90-day suspension of escalating tariffs, providing a temporary reprieve to global trade tensions. The deal has boosted market sentiment and eased concerns over a US-led recession, reinforcing expectations that the Federal Reserve (Fed) may have more room to keep interest rates elevated if economic conditions remain firm.

In contrast, Mexico’s economy remains under pressure from existing US tariffs on aluminium, steel, and autos. These 25% import duties have increased the cost of Mexican goods in US markets, threatening competitiveness and placing strain on export-driven industries. Local data and commentary from policymakers have increasingly reflected these challenges, showing signs of a broader economic slowdown.

In response, Banxico has pursued a dovish monetary path, cutting interest rates at six consecutive meetings to support growth and mitigate external pressures. A further 50 basis-point (bps) cut is expected at Thursday’s rate decision, which would further narrow the interest rate differential between Mexico and the US.

Mexican Peso daily digest: Banxico – US CPI and Banxico take the spotlight

• On Monday, Mexico’s March Industrial Output data for March declined 0.9% MoM (vs. -1.1% est.) and rose 1.9% YoY (vs. 1.5% est.), marking a rebound from the previous -1.3% contraction. 
• Despite the better-than-expected figures, Banxico is still expected to cut rates on Thursday as broader economic pressures persist and policy divergence with the Fed continues to drive USD/MXN higher.
• With US yields remaining elevated and Mexico’s policy outlook turning increasingly accommodative, capital flows have continued to favour the US Dollar, exacerbating downside pressure on the Peso.
• US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer met with Chinese Vice Premier He Lifeng in Geneva over the weekend, where both sides reported progress. He described the talks as “candid and constructive,” while the US said “substantial progress” was made toward resetting trade relations.
•  The US agreed to cut tariffs on Chinese imports from 145% to 30% for 90 days, providing relief to global supply chains.
• Beijing committed to lowering tariffs on US goods from 125% to 10% and announced the suspension of key retaliatory countermeasures.
• Fed Governor Adriana Kugler, speaking in Dublin on Monday, noted trade policy uncertainty is complicating growth forecasts and backed keeping rates steady until clearer data emerges.
• According to the CME FedWatch Tool, there is a 92% probability that the Federal Reserve will keep rates steady at 4.25–4.50% in June, with the first 25 bps rate cut now only priced for September.
• In contrast, Banxico has cut rates at six consecutive meetings and is expected to continue easing, adding pressure on the Peso via a narrowing interest rate differential.

USD/MXN breakout attempt lifts pair above trendline resistance

USD/MXN has broken above descending trendline resistance from the April high, with the pair rallying toward 19.64, supported by improving short-term momentum and strong intraday buying interest.

The breakout follows a rebound off support at 19.42, marking the lower boundary of the recent consolidation zone. The pair has now pushed above the 10-day Simple Moving Average (SMA) at 19.59, reinforcing near-term bullish sentiment.

USD/MXN daily chart

Key resistance is seen at the 23.6% Fibonacci retracement level of the April–May decline at 19.81, followed by the 38.2% level at 20.05. A daily close above these levels would further validate the bullish reversal and open the door to a broader recovery.

On the downside, 19.47–19.42 remains the key support zone; a drop back below this area would invalidate the breakout and expose the pair to renewed selling pressure.

The Relative Strength Index (RSI) has ticked higher to 44.71, edging closer to the 50-neutral line, indicating a gradual improvement in bullish momentum but not yet confirming a full shift in trend.

The breakout above trendline resistance and the 10-day SMA is a constructive signal for bulls, but follow-through above 19.81 will be needed to confirm a trend reversal in USD/MXN.