Mexican Peso recovers as threat of trade war recedes

The Mexican Peso is rebounding on Thursday as the threat of trade between the US and Mexico recedes. 

Reportedly positive conversations between the two country’s leaders, resulting in upbeat messages on social media, are calming investor nerves. 

Technically, USD/MXN pushes back from the top of a mini range and begins to cycle lower.

The Mexican Peso (MXN) rebounds by almost one and a half percentage points in its most-traded pairs on Thursday as markets price in less chance of a United States (US) – Mexico trade war. 

The Peso makes back the losses it suffered on Tuesday. These came after President-elect Donald Trump said he would place 25% tariffs on Mexican and Canadian imports unless they put a stop to illegal immigration and the cross-border traffic of narcotics into the US. The MXN declined due to the expected hit such tariffs would have on Mexican exports.  

In response, Mexican President Claudia Sheinbaum said Mexico would counter any US levies with its own tariffs. Sheinbaum said Mexico was already doing a lot to reduce illegal immigration, which had come down by 75% in 2024 so far. Further, she said Mexico was also cracking down on drug cartels smuggling Fentanyl into the US but that these gangs were being armed with guns from the US. A trade war would do substantial harm to business in both countries' economies, she added.

The Mexican Peso stabilized on Wednesday, however, after Trump appeared to soften his rhetoric towards Mexico. Late on Wednesday, the former president posted a message on Truth Social that he had just had “a wonderful conversation” with Sheinbaum and that she had agreed to stop migration through Mexico, according to Lallalit Srijandorn, editor at FXStreet. His comments suggested the 25% tariffs might be averted.