Mexico’s peso becomes an unlikely winner in Trump’s trade war
The peso is up more than 11% this year. Mexico’s central bank has been cautious, keeping interest rates high and luring cash from investors.
Betting on Mexico’s currency has paid off for investors even amid President Donald Trump’s trade war.
The peso is up more than 11% this year, beating all regional peers, even as it dipped Monday following the latest tariff news — a threat of a 30% levy announced over the weekend. It is also one of the best-performing in emerging markets.
Mexico’s high interest rates and President Claudia Sheinbaum’s tempered approach toward Trump have helped lure in cash from investors reallocating money away from the United States. And after months of repeated delays on the implementation of tariffs, money managers have grown more complacent, with reactions to fresh announcements largely contained as they look past Trump’s threats to focus on the medium-term outlook.
“Markets know the drill,” said Marco Oviedo, a senior strategist at XP Investimentos in Sao Paulo. “The only risk that I see is if the Mexican government fails to deliver something that Trump wants on drug control that might leave tariffs high for longer or negotiations in limbo.”
Mexico’s strong economic ties to the U.S. have also worked in the peso’s favor. Most of the nation’s exports to the world’s largest economy are protected from the latest levy threat thanks to the USMCA trade deal.
Although Mexican officials were taken aback by Trump’s latest tariff threat, U.S. Ambassador to Mexico Ronald Johnson said Saturday in Mexico City that Sheinbaum and Trump have a “wonderful relationship” and no partnership should be easier than between their two countries.
The Mexican central bank has also kept a cautious approach lowering borrowing costs. After delivering a half-point cut that left the key rate at 8% last month, governor Victoria Rodriguez embraced the likelihood of smaller reductions going forward in a July 9 speech. That helped the peso inch higher last week, outperforming as developing-world currencies slipped amid the latest barrage of tariff announcements.
“The peso is trading incredibly well in the face of this,” said Eric Fine, portfolio manager for emerging markets debt at Van Eck Associates. “This reaction has many explanations, but EMFX and interest rates have had a great year despite tariff-dominated news flow.”