Mexican Peso Surges as USD Weakens, USD/MXN Nears Key 19.00 Level

Mexican Peso Surges as USD Weakens, USD/MXN Nears Key 19.00 Level

The Mexican Peso (MXN) continued to strengthen against the US Dollar (USD) on Tuesday, marking its third consecutive day of gains. The USD/MXN pair slipped to 19.28, down 0.18% on the day, following a broad sell-off in the US Dollar amid growing fiscal concerns and political developments in Washington.

The Peso briefly touched a new yearly high earlier in the European session when USD/MXN dropped to 19.25. Investors are increasingly bullish on the MXN, supported by expectations of strong domestic economic data and persistently high inflation, which could reinforce the likelihood of tight monetary policy by Mexico’s central bank.

All eyes are on Wednesday's release of Mexico’s April Retail Sales, along with the final reading of Q1 2025 GDP and the mid-May inflation print. These figures could further boost confidence in the Mexican economy and attract more foreign capital into Peso-denominated assets.

Meanwhile, across the border, US markets are digesting the impact of last week's credit rating downgrade by Moody’s, which lowered the US sovereign debt rating from AAA to AA1. At the same time, political uncertainty is mounting as the US Congress prepares to vote on former President Donald Trump’s highly controversial tax bill—nicknamed the “One Big Beautiful Bill.” The bill is expected to significantly increase the federal deficit over the next decade, adding to fiscal pressure on the US economy.

The Federal Reserve remains cautious, with several officials delivering remarks that suggest the central bank is not in a rush to ease monetary policy. However, uncertainty over the future of fiscal discipline and weaker demand for US assets continue to weigh on the Greenback.

From a technical standpoint, USD/MXN remains bearish. With strong selling pressure intact, traders are now watching the key psychological support level at 19.00. A confirmed break below this level could open the door for deeper downside toward 18.80 or even lower in the near term.

The combination of supportive domestic fundamentals in Mexico and increased macroeconomic and political headwinds in the United States continues to favor the Mexican Peso in the short to medium term.