• The Mexican Peso depreciates amid uncertainty over the future of trade with the US and the likely imposition of tariffs. 
• The threat of mass deportation of Mexican immigrants could further hit remittance flows and demand for MXN.  
• USD/MXN rebounds from the bottom of a rising channel, and looks poised to resume its established uptrend. 

The Mexican Peso (MXN) depreciates in its main pairs as it continues its run of weakness into the third day on Tuesday. Investor fears about the impact of President-elect Donald Trump’s policy agenda on the Mexican economy are a major factor in the Peso’s depreciation, as are expectations that the Bank of Mexico (Banxico) will forge ahead with a quarter percent interest rate cut at its meeting on Thursday and, more generally, a stronger US Dollar (USD).  

Mexican Peso declines on uncertainty regarding Trump policies towards Mexico

The Mexican Peso weakens as markets digest the implications of Trump’s proposed policy agenda on the Mexican economy, including the outlook for trade relations between the two nations, issues surrounding migration, the war on drugs and the radical constitutional changes to the judiciary pushed through by Mexico’s Morena-led governing coalition.

The two countries (and Canada) have an existing free trade deal, the United States-Mexico-Canada Trade Agreement (USMCA) which is in place until 2026. However, Mexico’s recent changes to its constitution, such as the controversial reform to the judiciary that will make judges elected by popular vote rather than appointed, contravene the agreement. This could give Trump the opportunity to press for an immediate renegotiation, according to El Financiero.

On Friday, the Peso weakened almost 2.0% in a day after the Financial Times reported that Donald Trump had offered Washington lawyer Robert Lighthizer the job of US trade chief. Although the rumors were later contradicted by Reuters, who quoted a source in the White House as saying they were “untrue,” the possibility the known protectionist hawk could get the job was another risk for MXN.