Mexican Peso wavers amid US tariff delays, strong US data

• Mexican Peso treads water after failing to clear support at 20.30.
• Mixed economic data in Mexico weighed on the Mexican currency.
• Traders await Banxico's monetary policy meeting and Fed speakers.

The Mexican Peso (MXN) registered losses against the US Dollar (USD) on Tuesday, but still it remains up in the week after United States (US) President Donald Trump delayed tariffs on Mexico, following discussions held with Mexican President Claudia Sheinbaum. The USD/MXN trades at 20.47, up 0.74%

The USD/MXN pair has found strong support near the 20.30 area despite losing over 1.30% on Monday. Yesterday, the US and Mexico reached an agreement to pause tariffs a month from now, as President Sheinbaum compromised to increase security at the border to stop drug traffic and illegal migration.

Investors cheered the news as risk appetite improved, and the Mexican currency finished strong in Monday's session.

In addition, Mexico's economic data revealed that January's Business Confidence improved, though business activity contracted, according to S&P Global. Manufacturing activity contracted for the seventh straight month in January, indicating that the economy is slowing down.

Meanwhile, US job openings dropped by the most in 14 months, according to US Department of Labor data. The data revealed that the labor market and the economy remain strong, keeping the Federal Reserve (Fed) on hold at least until June.

Given the backdrop, further upside in the USD/MXN is seen, though traders must be aware of Fed official speakers during the rest of the day. Ahead in the week, Banco de Mexico (Banxico) is expected to cut rates by Thursday.

Uncertainty surrounds the size of the cut, as some Central Bank officials had opened the door for larger than a quarter of a percentage point of easing.

Daily digest market movers: Mexican Peso on the defensive as the Greenback counterattacks

• Mexico's Business Confidence deteriorated slightly from 52.0 in December to 51.4 in January, revealed the Instituto Nacional de Estadistica Geografia e Informatica (INEGI). The manufacturing sub-component grew from 51.4 to 51.7 for the same period.
• S&P Global Manufacturing PMI in January dropped from 49.8 to 49.1, showing that manufacturing activity is slowing down.
• Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said: "Mexican manufacturers began 2025 on a weaker footing, going deeper into retrenchment mode as current demand conditions and a bleak outlook prompted them to seek cost savings and protect cashflows."
• Banxico's private economists survey showed that Mexico's economy is expected to grow by 1% in 2025, down from 1.2% in December. Inflation is expected to tick higher from 3.80% to 3.83%, while core prices are foreseen at 3.74%, up from 3.72%.
• Economists estimate the USD/MXN pair exchange rate to finish the year at 20.90, up from 20.53 in December, and estimate 150 basis points of easing from Banxico.
• US Job Openings and Labor Turnover Survey (JOLTS) in December dipped from 8.156 million to 7.6 million, below estimates of 8 million.
• Money market fed funds rate futures are pricing in 48 basis points (bps) of easing by the Federal Reserve in 2025.

USD/MXN technical outlook: Mexican Peso weakens past 20.50 as buyers target 20.90

The USD/MXN has recovered after hitting a five-day low of 20.39 as Trump paused tariffs on Mexico. During the North American session, the exchange rate climbed above the 50-day Simple Moving Average (SMA) of 20.42, opening the door for further upside.

A daily close above the psychological 20.50 area could pave the way to test the previous yearly high of 20.90. If surpassed, look for the current year's high at 21.29.

Conversely, if sellers push USD/MXN below 20.30, it could fall to the 100-day SMA at 20.15. ahead of the 20.00 figure.