Mexican Peso strengthens to yearly high as trade war cools, mood improves

• Mexican Peso rallies and USD/MXN drops 0.61% to 19.58 on US-China de-escalation hopes.
• US Treasury's Bessent signals easing trade tensions with China, boosting emerging market currencies and equity sentiment.
• Mexico's economy remains fragile; key data this week includes Retail Sales, mid-April inflation, and activity figures.

The Mexican Peso (MXN) posted substantial gains versus the US Dollar (USD) on Tuesday, sponsored by an improvement in risk appetite due to optimistic news of a 'de-escalation' of the trade war between the US and China. At the time of writing, USD/MXN trades at 19.58, down 0.61%.

The economic docket on both sides of the border keeps investors leaning on news headlines and geopolitics. Bloomberg reported that US Treasury Secretary Scott Bessent said he saw a de-escalation with China during a closed-door meeting in Washington. Wall Street cheered the news, as the three leading US equity indices edged higher.

Despite this, the harsh rhetoric of the White House against Federal Reserve (Fed) Chair Jerome Powell keeps investors doubtful of the US central bank's apolitical stance. On Monday, the US Dollar Index (DXY), which tracks the buck's value against a basket of six currencies, plummeted by over 1% to reach a three-year low of 97.92.

As of writing, the DXY recovered some ground, up 0.44% at 98.74. This capsized the fall of the USD/MXN, which fell to a yearly low of 19.51.

Data-wise, Mexico's National Statistics Agency revealed that the economy remained stagnant in March. The economy had shown signs of weakness since late last year, due to tariff threats, leading to a downward review of the Mexican economy.

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

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

• Postures between Banco de Mexico (Banxico) and the Fed favor further upside in USD/MXN. At its 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 President Claudia Sheinbaum said that there is no agreement with the US about tariffs, yet she added that she established that Mexico has a deficit on steel and aluminum with the US. She added, "The US exports more steel and aluminum to Mexico than vice versa."
• 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.

USD/MXN technical outlook: Mexican Peso holds firm as USD/MXN stays below 19.70

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.