Mexican Peso Tumbles to 6-Week Lows

The Mexican peso weakened toward 17.7 per dollar on Tuesday, hitting a six-week low as a massive trade deficit and energy price shocks left the currency vulnerable to a global shift toward safe-haven assets. The escalation of the US-Iran conflict and the effectively closed Strait of Hormuz have fueled a risk-off surge into the US dollar. Simultaneously, Mexico posted a record 6.48 billion dollar trade deficit in January, driven by a 33.5% collapse in oil exports and a sharp 9% drop in automotive shipments to the US. While Q4 GDP was revised up to 0.9%, confirming some resilience at year-end, the 10% global US import tax introduced on February 24 threatens to erase these gains and further hinder Mexico’s exports. Banxico’s decision to hold rates at 7% in February amid sticky 4.52% core inflation has also failed to provide a sufficient buffer against the dollar’s strength.

The Mexican peso weakened toward 17.35 per dollar, its lowest in nearly a month, as a massive escalation in the Middle East drove investors into safe-haven assets. A "risk-off" wave followed joint US and Israeli strikes on Iran, pushing the US dollar and gold higher while punishing emerging market currencies. Domestic headwinds added pressure as February data showed Mexico's manufacturing sector remains in its sixth straight month of contraction, with the PMI at 47.1. Despite a slight recovery in business confidence, firms cited ongoing worries over US tariffs and weak demand from the automotive sector. Inflation also remains a concern. While headline inflation eased to 3.79% in January, core inflation stayed sticky at 4.52%. Consequently, Banxico held interest rates at 7% in February and signaled that the return to its 3% target is now delayed until the second quarter of 2027. This narrowing yield advantage against a resilient US dollar continues to weigh on the peso.

The Mexican peso weakened past 17.2 per, easing from mid-2024 highs as fresh protectionist trade measures in the US and a deteriorating formal labor market eroded the currency yield advantage. The US invoked Section 122 to impose a 15% global import surcharge following a February 20 Supreme Court ruling that struck down previous emergency duties. Demand for the peso softened as January 2026 data revealed a net loss of 8100 formal jobs marking the worst start to a year since 2014. While the unemployment rate held at 2.7% in January 2026 business confidence remained in pessimistic territory for the eleventh consecutive month as manufacturing contracted. Supply of the peso grew against a resilient US dollar supported by hawkish signals from the Federal Reserve amid sticky 3% core PCE inflation. Banxico maintained interest rates at 7% in February 2026 but warned that trade surcharges delayed the expected return to a 3% inflation target until mid 2027.