The Mexican peso could weaken significantly if the U.S. imposes proposed 25% tariffs on Mexican goods, according to BBVA analysts. They predict a potential drop to over 24 pesos per dollar, a substantial depreciation from the January 31st closing rate of 20.6871.
While this short-term outlook is concerning, BBVA projects a possible recovery to 23 pesos per dollar by year-end, contingent on a resolution of trade tensions between the two countries. They anticipate Banxico will remain cautious before resuming interest rate cuts, potentially towards the end of the third quarter.
BBVA notes that while depreciation could fuel inflation, weaker domestic demand might lessen the impact. This could allow Banxico to cut rates despite slow growth. A less severe 10% tariff, as previously suggested, is projected to have minimal impact on the exchange rate compared to the January 31st level.
Conversely, if Mexico avoids tariffs altogether, the peso could strengthen to around 19.5 per dollar, potentially prompting Banxico to raise the monetary policy rate to 7.5% by year-end.
The peso’s future hinges on international trade relations, highlighting their importance for Mexico’s economic stability. BBVA and Banxico’s forecasts suggest challenges but also potential recovery, depending on Mexico’s ability to manage the tariff threats and maintain stable trade with the U.S.
Written by Mexpat Realtors – March 2025
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