The strong Mexican peso is set to fall after US stops tariff hike

Greatest US dollar decline in decades

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In 2025, the US dollar recorded a historic half-year decline against the Mexican peso, depreciating by more than 10%, its greatest decline in 52 years. That led to investors moving away from the US dollar and looking at the Mexican peso.

Set to slip after being at its strongest

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But after being at its strongest in almost a year last quarter, the peso is now set to fall a moderate 5.5% in the next 12 months since there will be a halt on US tariff hikes against other countries next week, a Reuters poll showed.

Best-performing emerging currencies

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Since January, the Mexican peso has appreciated against the dollar, placing it among the best-performing emerging currencies. This growth has boosted capital inflows and significantly improved international perceptions of the stability and potential of the Mexican economy.

18.75 pesos per dollar

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At the end of June 2025, the official exchange rate stood at 18.7540 pesos per dollar, according to data from the Bank of Mexico, but it’s about to fall to 19.80 in the next coming months, per the Reuters poll. But how did the peso get to be so strong?

Keys to the strength of the Mexican peso

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Although annual inflation in Mexico reached 4.42% in May 2025, exceeding Banxico's target, underlying inflation is showing signs of moderating. The fiscal deficit remains contained and international reserves remain strong. These conditions have sustained investor confidence.

Fed policy puts pressure on US dollar

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The Federal Reserve is keeping interest rates in a high range (4.25%-4.5%) to contain inflation, which is running above the expected 2% rate, but the lack of cuts and the lack of clear signs of an economic slowdown have weakened the dollar, generating uncertainty among investors.

Trade uncertainty

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The IMF warns that Trump's tariffs and political uncertainty have damaged the US economy, generating stagflation, according to CNN. Investors are seeking refuge in currencies like the Mexican peso and the euro.

Interest in emerging currencies

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The dollar's decline has channeled greater flows toward riskier assets and emerging currencies, particularly benefiting the Mexican peso. Global markets are showing a growing appetite for economies with solid fundamentals, strengthening the peso's position in the international financial landscape.

Gold and euro soar on dollar weakness and global uncertainty

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According to Bloomberg data, dollar volatility and the deteriorating international economic environment have boosted demand for safe-haven assets. Gold reached all-time high near $3,300 per ounce, while the euro appreciated 13% against the dollar.

Economic uncertainty

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However, the IMF has lowered its forecasts for Mexico and now projects a 0.3% GDP contraction in 2025, due to the impact of US tariffs, geopolitical uncertainty, and trade tensions.

A challenge for exports

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The strengthening of the Mexican peso reduces the cost of imports and alleviates inflationary pressures, but it can also affect the competitiveness of exports. Maintaining this balance will be essential to ensuring sustainable economic growth in the country.

The Mexican peso in the face of global political uncertainty

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Furthermore, the Mexican peso's direction will be influenced by the evolution of trade tensions and monetary policy decisions in the United States. Any sharp change in these factors could reverse the current trend and increase volatility in the foreign exchange markets.

Biggest drop against the peso since 1973

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The dollar's sharp decline against the Mexican peso hadn't been recorded since the collapse of the Bretton Woods system in 1973. This event represents a historic turning point in the exchange rate dynamics between the two currencies.

Sheinbaum highlights solid policies as a driver

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Mexican President Claudia Sheinbaum attributed the strengthening of the peso to robust domestic policies and the confidence generated among investors. The government maintains a clear focus on economic stability and responsible management of public finances.

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