The Mexican Peso remains stable against the US Dollar, even with proposed US tariffs on the European Union. The USD/MXN exchange rate is below 19.30 as we receive new economic updates from both Mexico and the US. Concerns about a US recession are growing due to Trump’s suggested 50% tariff on EU imports. Mexico’s trade balance for April showed an $88 million deficit, which is better than the expected $160 million. This marks a significant shift from March’s $3.442 billion surplus, according to INEGI.

Trump’s Tariff Proposal

Trump has proposed a 50% tariff on EU imports starting June 1st, citing difficulties in negotiations. Recent US news includes Trump’s tax bill and Moody’s credit rating downgrade, both of which affect the Dollar’s strength. There are rising worries about possible global economic effects from these tariffs that could impact companies like Apple. The Congressional Budget Office predicts that Trump’s tax bill might increase the US deficit by $3.8 trillion from 2026 to 2034. The impact of Moody’s downgrade and Trump’s tax policy puts added pressure on the US Dollar. The CME FedWatch tool indicates a 94.7% chance that interest rates will remain between 4.25% and 4.50% in June, with no changes expected until September. Mexico’s inflation and GDP data align with expectations, easing pressure on Banxico to make further rate cuts. The USD/MXN exchange rate remains below 19.30, signaling a possible downtrend, with the Relative Strength Index (RSI) at 38.92.

The Impact of the Federal Reserve

The US Dollar is widely used in global transactions and makes up 88% of forex trading. The value of the Dollar is predominantly influenced by the Federal Reserve’s monetary policy. To manage inflation and employment, the Federal Reserve adjusts interest rates, affecting the Dollar’s strength. Moreover, processes like quantitative easing and tightening impact the Dollar’s value during various economic conditions. The Peso’s current position under the 19.30 mark shows its resilience despite international tensions. Even with new tariff threats from the US, we haven’t seen the typical increase in the USD/MXN exchange rate. Recent Mexican trade data performed better than expected, even though it still shows a deficit, which indicates that Mexico’s economic situation may not be as weak as many thought. The smaller deficit in April compared to March’s surplus raises questions about export stability or shifting demand. Those tracking these flows will want to consider this month’s change, especially if future trade data is weaker. A growing trade deficit can indicate future pressure on the currency unless it is balanced out by investment inflows or other foreign exchange sources. In the US, proposed tariffs and Washington’s fiscal policies bring their own consequences. A 50% tariff on EU goods set to begin in early June goes beyond normal trade negotiations. If enacted, this could affect transatlantic trade and lead to inflation and consumption changes. Traders will closely watch for retaliatory actions and shifts in global supply chains, which historically cause fluctuations in safe-haven investments. Short-term fiscal policy projections are becoming concerning. The expected $3.8 trillion increase in US deficits over the next decade due to possible tax changes weighs heavily, especially in light of slower growth and credit downgrades. These elements can undermine confidence in US debt stability, particularly if rating agencies continue to downgrade their forecasts. It is clear why the Federal Reserve is keeping rates steady. The CME’s probabilities suggest policymakers see risks on both sides—growth and inflation—and are prepared to wait. While markets often seek direction, this pause invites volatility as expectations shift with new data. The Dollar remains contained within a narrow range, but ongoing stressors like tariffs and fiscal issues could quickly alter perceptions. In Mexico, steady inflation alongside consistent growth data reduces the justification for Banxico to ease policies further. This supports the Peso, even without aggressive tightening, giving it a carry advantage due to differing policies with the Fed. However, if growth weakens or inflation rises, easing expectations might be reignited. Technically, the 19.30 level acts as a barrier to any upward movement of the Dollar. The current RSI of 38.92 is below the neutral 50 mark, signaling a bearish sentiment for the pair. While this doesn’t guarantee a quick reversal, it shows a shift from the stronger USD/MXN rates we saw earlier this year. The Fed’s actions or inactions can significantly influence market prices. Their balance sheet strategies—like asset purchasing or roll-offs—alter liquidity flows. These approaches, although not flashy, have implications for cross-border capital flows and can impact demand for foreign exchange. As tariff announcements coincide with steady interest rates and looming fiscal concerns, it becomes evident that short-term positioning isn’t a straightforward decision. There are many factors at play—some like deficit growth are slow-moving, while others, like trade policies, can have immediate effects. This will keep the dynamics between the Dollar and Peso volatile in the near term. Those monitoring spreads, forward rates, or interbank liquidity should remain vigilant about how these variables interact over time. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now