Dollar Strengthens Following US-China Trade Agreement
The Mexican peso weakened against the US dollar at the start of the week, as a trade agreement between the United States and China bolstered the greenback. Meanwhile, local industrial activity in Mexico declined, further affecting the peso.
The dollar’s value rose to 19.6659 pesos, down from a previous close of 19.4206 pesos, according to official data from Mexico’s central bank, Banco de México (Banxico). This resulted in a 13.70-cent loss, or 0.70%, for the peso.
The Intercontinental Exchange’s Dollar Index (DXY), which measures the dollar against a basket of six reference currencies, increased by 1.42% to reach 101.76 points.
Trade Agreement Details
Negotiations between the United States and China concluded on Sunday with favorable outcomes. The negotiators agreed to pause tariffs for 90 days and reduce tariffs by over 100 percentage points, lowering them to 30% and 10%, respectively.
Markets had been anticipating news about the relationship between the two largest economic powers for several days. The agreement between the countries alleviates concerns about the US economy, thereby increasing demand for US assets.
“President Donald Trump stated that he would reward China via tariffs for its actions regarding fentanyl, while negotiations with Europe have been more challenging, triggering a wave of dollar purchases,” said Juan Carlos Cruz, a financial consultant.
Declining Local Industrial Activity
On the domestic front, the peso’s depreciation followed news that local industrial activity contracted in March. According to the National Institute of Statistics and Geography (INEGI), Mexico’s industrial activity decreased by 0.9% on a seasonally adjusted basis in March, although it increased by 1.9% year-on-year.
These figures were released at the beginning of a week marked by Banxico’s monetary policy decision on Thursday. Economists anticipate that the central bank will continue to lower its reference interest rate amid signs of economic slowdown.
“There are several important economic data releases in the United States on Thursday, along with Banxico’s monetary policy announcement. Despite the inflation rebound in April, Banxico might lower its reference rate by 50 basis points to 8.50%,” said the consultancy Metanálisis.
Positive Projections for Peso
Despite the moderate decline in the peso at the end of the trading day, experts have noted that its behavior in recent sessions suggests an upcoming appreciation, driven by improved market sentiment following recent trade announcements.
“Moving averages indicate that the exchange rate may be nearing a downward trend shift,” Banco Base, a local firm, stated in an analysis note. “For now, the exchange rate remains within the range of 19.50 to 19.65 pesos per dollar.”
Key Questions and Answers
- What caused the Mexican peso to weaken? The peso weakened due to a stronger US dollar, supported by a trade agreement between the United States and China, as well as a slowdown in local industrial activity.
- What details were agreed upon in the US-China trade deal? The negotiators agreed to pause tariffs for 90 days and reduce existing tariffs by over 100 percentage points, lowering them to 30% and 10%, respectively.
- How did local industrial activity impact the peso? The decline in Mexico’s industrial activity, as reported by INEGI, contributed to the peso’s depreciation.
- What is expected from Banxico’s monetary policy decision? Economists anticipate that Banxico will continue to lower its reference interest rate amid signs of economic slowdown.
- What factors support positive projections for the peso? Improved market sentiment following recent trade announcements and a potential shift in the exchange rate’s downward trend are driving positive projections for the peso.
