Mexican Peso holds firm despite Powell ouster talk, USD/MXN below 20.00

• Mexican Peso shrugs off modest rebound in USD as market distrust in Fed independence.
• USD/MXN edges up 0.05% after Peso's 3%  rally last week, fueled by political turmoil in Washington.
• Sheinbaum says no deal yet with Trump on tariffs, defends Mexico's trade position on steel and aluminum.
• Key Mexico data ahead: Retail Sales, mid-April inflation, and economic activity will set tone for Peso direction.

The Mexican Peso erased some of its earlier gains, yet it remains poised to continue to gain ground against the US Dollar as investors keep the Greenback bid after US President Donald Trump's comments that he could oust Federal Reserve (Fed) Chair Jerome Powell rattled the markets. The USD/MXN trades at 19.71, up 0.05%.

Last week, the Peso registered close to 3% gains, with the USD/MXN falling from 20.29 to 19.70 as market participants sold the US Dollar due to their lack of confidence in policymakers. The trade war weighed on the Greenback as the US Dollar Index (DXY), which tracks the performance of the American currency against six others, fell 1.06% to 98.35.

Mexico's President Claudia Sheinbaum commented that there is not an agreement with Trump about lifting US tariffs. She said, "We didn't reach an agreement, but we did establish our arguments. In the case of steel and aluminum, we established that we have a deficit. The US exports more steel and aluminum to Mexico than Mexico to the US."

Mexico's economic docket will be busy this week, with traders awaiting the release of Retail Sales, Mid-month inflation, and Economic Activity data.

Mexican products have dodged most tariffs. Nevertheless, US imports of steel, aluminum cars and auto parts remain subject to 25% duties. Last week, Washington decided to apply 21% tariffs on tomatoes.

Daily digest market movers: Mexican Peso stays firm amid absent economic docket

• Postures between Banco de Mexico (Banxico) and the Fed favor further upside in the USD/MXN. At the May meeting, Banxico is expected to lower interest rates by 50 basis points (bps). On the contrary, the Fed is seen as cautious, as some officials have shown concerns about a reacceleration of inflation spurred by tariffs.
• Mexico's Mid-month inflation is expected to rise from 3.67% to 3.79% YoY and core figures to increase from 3.56% to 3.77% YoY.
• Economists project that the Mexican economy will most likely improve in February after contracting -0.2% MoM in January and will expand by 0.6%. Every year, the economy is projected to contract sharply from -0.1% to -0.6%.
• Banxico Governor Victoria Rodriguez Ceja said the central bank is ready to continue easing policy.
• Money market players have priced in 96 bps of Fed easing toward the end of 2025 with the first cut expected in July.

USD/MXN technical outlook: Mexican Peso holds firm as USD/MXN stays below 20.00

The USD/MXN turned bearish after it dropped below the 200-day Simple Moving Average (SMA) of 19.89. This exacerbated the drop toward 19.58, a five-month low, before paring some losses. The Relative Strength Index (RSI) has shown that sellers are losing momentum, opening the door for buyers to challenge the 200-day SMA.

A breach of the latter will expose the psychological 20.00 barrier. If cleared, the next stop would be the confluence of the April 14 high and the 50-day SMA near 20.25-20.29 before testing the 100-day SMA at 20.33.