Key moments

• USD/MXN exchange rate remains above the 20.5000 threshold.
• Marked by significant volatility, the USD/MXN pair reached a high exceeding 20.9600 on Tuesday, followed by a swift retreat. Despite Wednesday’s continued fluctuations, the pair settled above 20.5000.
• In response to U.S. tariffs, Mexico, under President Claudia Sheinbaum, has announced plans to implement its own tariffs on U.S. goods.

USD/MXN Rises As Tariff Conflict Continues

The financial markets witnessed a turbulent session as the USD/MXN exchange rate experienced significant fluctuations, breaching the 20.5500 threshold and briefly surging to 20.6500 on Wednesday. This volatility stemmed from the escalating trade tensions between the United States and Mexico, triggered by the implementation of new tariffs. This development follows Tuesday’s rally, when the USD/MXN reached a peak of 20.96564 before a steep drop.

The initial surge in the USD/MXN pair occurred after the United States imposed 25% tariffs on Mexican imports. This move, which aimed to address concerns over fentanyl trafficking according to U.S. President Donald Trump, triggered immediate market reactions. The Mexican peso, heavily reliant on trade with the U.S., faced substantial pressure, leading to a sharp depreciation.

However, the exchange rate’s trajectory was not unidirectional. Wednesday saw the drop to under 20.5000. At press time, however, the rate hovers around the 20.5400-20.5678 range.

This recovery was partly attributed to signals from U.S. officials suggesting a potential reconsideration of the tariff policy. The U.S. Commerce Secretary’s remarks about a possible “middle ground” with Mexico and Canada provided a degree of relief to market participants.

Despite these positive signals, uncertainty persists. Mexico’s President Claudia Sheinbaum announced plans to unveil retaliatory tariffs on U.S. goods on Sunday, signaling the country’s intent to counter the U.S. measures. This announcement added another layer of complexity to the trade dispute, leaving investors wary of further escalation.

The situation is not isolated to the U.S.-Mexico relationship. Canada and China have also announced retaliatory measures against U.S. tariffs. Canada has indicated its readiness to impose 25% tariffs on a substantial volume of U.S. goods. China, in response to the U.S. tariffs, has announced tariff increases of 10%-15% on a range of U.S. agricultural and food products, alongside other trade restrictions.