The USD/MXN pair gained momentum during the Asian session on Tuesday, approaching its highest level since July 2022, trading around the 20.70-20.75 area—up over 1.0% for the day. The Mexican Peso (MXN) weakened following US President Donald Trump’s announcement that he plans to impose 25% tariffs on imports from Canada and Mexico, with a potential start date as early as February. This comes alongside dovish comments from Banco de Mexico (Banxico) Deputy Governor Jonathan Heath, who suggested that both headline and core inflation are likely to remain below 4% in January. Heath also stated that Banxico does not need to adopt an overly restrictive stance, further contributing to the strengthening of the USD/MXN pair.
Trump’s Tariff Announcement Fuels Trade War Concerns
The resurgence of demand for the US Dollar (USD) follows Trump’s tariff remarks, reigniting fears of a trade war and inflationary pressures. Meanwhile, the USD Index, which measures the Greenback against a basket of major currencies, rebounded from a two-week low reached on Monday. Trump’s protectionist policies appear to support the safe-haven USD.
Fed Rate Cut Bets Cap USD Strength
However, the recent signs of easing inflation in the US have led to increased market speculation that the Federal Reserve (Fed) may implement two interest rate cuts later this year. This has tempered the US Dollar’s further rally and capped additional gains for the USD/MXN pair.
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