The peso has fallen for the fourth day in a row, and reached values not seen since the middle of 2022.
This decline follows the implementation by US President Donald Trump of a new 25 percent tariff on imports coming from Mexico.
The tariffs went into effect on Tuesday and have raised concerns about the economic stability of Mexico which heavily relies on trade with its northern neighbor.
Around 80% of Mexican exports go to the United States. This makes the country vulnerable to changes in US Trade Policy.
As the markets opened in Europe, the peso fell almost 1% and traded at 20,85 per dollar.
This shift has contributed a surge in volatility on the market, with key indicators reaching levels not seen in over a month.
According to Reuters economists and analysts are concerned that a prolonged period with tariffs will plunge the Mexican economy into a deeper recession, compounding existing pressures from both the external and internal world.
Response from the Mexican government
Mexican President Claudia Sheinbaum stated on Tuesday that the 25% tariffs imposed by US President Donald Trump on Mexican imports were not justified and that her government would respond with tariffs and non-tariffs measures that are yet to be announced.
Sheinbaum said during a morning press briefing that “no one wins” with this decision.
This is a 22% drop in the peso from April last year, a clear change in market sentiment.
Analysts say that this drop can be attributed by increased fears about US trade policies, and a period of continued change in domestic politics, causing uncertainty on the market.
Mexico’s central banks is under increasing pressure to ease its policy as the rising borrowing costs and a slowing economy collide.
Uncertain future for Mexico
According to a poll released by the Central Bank of Mexico, analysts in private sector have revised down their growth expectations from a low 1% predicted at the start of the year to a mere 0.8%.
This revision reflects a growing belief among economists that tariffs are slowing down the economy, and increasing the risk of a general economic slowdown.
MUFG analyst Lee Hardman told Reuters that the peso’s movements were modest compared to tariffs. “Price action shows that the market still believes that these tariff increases will not be in place indefinitely and that they will limit the damage to trade as well as the economy.”
He warned that the Mexican economy would likely slide into recession if tariffs were kept in place for too long.
Hardman said that the peso and Canadian dollar, both of which have been under similar pressure, could lose 5-10% more if tariffs are not removed.
Since Trump’s victory in the election, the CAD has dropped by close to 4%.
Stock market reaction
The currency market is not the only place where negative economic indicators are present. Mexican stock market. The Mexican peso has dropped over 5% due to market fears about tariffs.
Even with this recent slump, the market is still 3% higher than it was in November before Trump won the election.
Santander (down 5%), BBVA (down 5,8%), and other major Spanish banks that do a lot of business in Mexico, also showed a marked decline in stock performance today. This is an indication that weakened Mexican economic conditions are affecting international markets.
The plummeting value in the Mexican peso last week amid the economic fallout of the US’s new tariffs exposed the vulnerability of Mexico’s trade-dependent economies.
It will be a difficult task to stabilize the currency of a country whose exports are largely destined for US markets and to protect against a possible recession.
This post Mexico’s peso falls sharply as new US Tariffs Fuel Economic Uncertainty may be modified as the updates unfold.
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