Mexican Peso slips as US-China deal boosts USD, Banxico rate cut bets weigh

• Mexico's Industrial Production was mixed; USMCA revision talks set to begin in H2 2025.
• US-China reach tariff rollback deal, lifting the Greenback and risk sentiment across markets.
• Banxico is expected to cut rates for the seventh time on Thursday, adding downside bias to MXN.

The Mexican Peso (MXN) is on the defensive against the US Dollar (USD) after developments over the weekend boosted the Greenback. A de-escalation of the US-China trade war, alongside expectations of a "large-sized" interest rate cut by the Banco de Mexico (Banxico), drove the USD/MXN pair higher. At the time of writing, it trades at 19.58, up by 0.79%.

Earlier on Monday, Washington and Beijing announced they'd reached an agreement to lower tariffs from 145% to 30% on China's imports to the US, while the US reduced duties from 125% to 10% on its imports from China.

In the meantime, Mexico's industrial production figures for March improved on an annual basis but declined on a monthly basis, according to the Instituto Nacional de Estadística, Geografía e Informática (INEGI). Traders are awaiting Banxico's monetary policy decision on May 15, in which the Mexican institution is expected to reduce rates for the seventh consecutive meeting.

Recently, Mexico's Finance Minister Edgar Amador Zamora said that he's confident in meeting the fiscal goals despite trade risks. Meanwhile, Mexico's Economy Minister, Marcelo Ebrard, announced that the USMCA revision will commence in the second half of 2025.

Daily digest market movers: Mexican Peso treads water as US-China deal boosts USD

• Mexico's March Industrial Output dipped by 0.9% MoM, above estimates of -1.1%. On an annual basis, it rebounded from a 1.3% contraction and expanded by 1.9% YoY, exceeding forecasts of 1.5%.
• A Reuters poll revealed that most economists are expecting a 50-basis-point (bps) interest rate cut by Banxico. This would be the seventh consecutive meeting in which the central bank has lowered rates.
• Mexico's inflation data for April, which expanded above expectations in both headline and core figures, would not prevent Banxico from prolonging its easing cycle.
• Worth noting that investors reduced their bets that the Federal Reserve (Fed) might only cut rates twice instead of thrice, as revealed by data from the Chicago Board of Trade (CBOT). The December 2025 fed funds rates futures contract shows that market players expect 57 basis points of easing.
• Therefore, monetary policy divergence between the Fed and Banxico might add pressure on the Peso and push USD/MXN exchange rate higher.
• Although Mexico's economy narrowly avoided a technical recession, tariffs imposed on Mexican products, a reduced budget, and geopolitical uncertainties will continue to strain the country's finances and impact the Peso.

USD/MXN technical outlook: Mexican Peso pressured as USD/MXN climbs towards 20-day SMA

After hitting a new year-to-date (YTD) low of 19.41, USD/MXN climbed past the 19.50 area and reached a three-day high of 19.66, past the 20-day Simple Moving Average (SMA) of 19.63, before retreating somewhat. Nevertheless, the Relative Strength Index (RSI) surges sharply, indicating buyers are moving in.

That said, USD/MXN next resistance would be the 20-day SMA. A breach of the latter will expose the May 6 high at 19.77, followed by the confluence of the 200 and the 50-day SMAs around 19.99. Once surpassed, traders would eye the 100-day SMA at 20.23.

Conversely, if USD/MXN tumbles below 19.50, the first support would be the YTD low of 19.41, followed by the 19.00 mark.