The Mexican peso remains volatile despite a bump from the last-minute deal postponing US President Donald Trump's threatened 25pc tariffs on Mexican imports, financial analysts said.
The US agreed Monday to delay the tariffs for one month after discussions between Trump and Mexican President Claudia Sheinbaum. In return, Mexico pledged to deploy 10,000 National Guard troops to its northern border to combat drug trafficking, with a focus on fentanyl.
The peso initially reacted positively to the news, strengthening by nearly 3pc late Monday after the agreement was announced. Still, today the Mexican peso weakened 0.4pc to Ps20.5 to the dollar by the end of trading, according to data from Mexico's Central Bank (Banxico). The peso has depreciated 16.6pc against the dollar from a year ago, according to Banxico data.
The currency will remain volatile until there is greater clarity on whether tariffs will ultimately be imposed and at what level, BBVA Mexico bank analysts said in a note. If the US proceeds with a 25pc tariff, the peso could weaken to Ps24/$1, pushing Mexico's economy into a 1.5pc contraction this year, according to the bank.
A lower 10pc tariff would be more manageable, BBVA Mexico added, as peso depreciation would offset some cost increases for US importers. In that scenario, Mexico's economy could still grow by 1pc in 2025.
"Markets have debated whether to take Trump's policy promises seriously but not literally, or both seriously and literally," Barclays analysts wrote in a note to investors.
Barclays also noted that the US sees itself as having the upper hand in any trade war, as a far greater share of Canadian and Mexican exports depend on US demand than vice versa.
Mexico's state-owned oil company Pemex typically benefits from peso depreciation because of its US dollar-denominated crude exports, which help offset higher fuel import costs. "Pemex's revenues are tied to international oil prices, providing a natural hedge," the company said in its latest earnings report.
However, analysts warned that Pemex's shift toward domestic refining over exports could reduce this buffer, leaving the company more vulnerable to foreign exchange swings, particularly as it carries a large dollar-denominated debt load.
