Bearish pressures have returned for the Mexican peso, with the currency experiencing its first unfavorable movements of 2025, reversing the previous recovery and showing a 0.4% depreciation against the US dollar (USD/MXN).
We have seen a significant bear trend emerging in MXN over the Christmas period, with the peso dropping from close to 0.05 to the USD just before Christmas, to slip down towards 0.0479 on New Year’s Eve. Over the longer term, the MXN is down more than 12% against the USD in the last six months.
This trend, despite the marginal weakness of the dollar, comes at a crucial time for the Mexican economy, characterized by unfavorable macroeconomic data, including a rise in unemployment and a decline in consumer confidence.
Fed will play key role in MXN market in 2025
It is important to highlight that various external and internal factors are exerting pressure on the currency. On the international front, the Federal Reserve’s monetary policy and the strength of the US economy play a crucial role. The expectation of a restrictive stance by the Fed could strengthen the dollar, generating selling pressure on the peso.
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Strong US labor market data is fuelling speculation that the Fed might keep interest rates unchanged at its next meeting, adding volatility to the forex market. The upcoming inauguration of Donald Trump and the advent of his trade policies is also injecting uncertainty into FX markets, negatively affecting the peso.
“Domestically, business confidence in Mexico dropped to 51.2 points in December, the lowest level since January 2023, with significant setbacks in the construction and retail sectors,” said Quasar Elizundia, a forex strategist with Pepperstone.
This weakness, coupled with a limited economic recovery, intensifies the pressure on the peso. While the services and manufacturing sectors show slightly positive indicators, they fail to fully offset the losses.
Mexico’s labor market looks challenging
The Mexican labor market presents a challenging outlook. The unemployment rate has risen to 2.6%, while underemployment stands at a concerning 8.9%. This high underemployment level, along with labor informality affecting more than 50% of the workforce, reveals structural weaknesses in the Mexican economy, despite low unemployment rates. Notably, female unemployment stands at 2.8%, slightly surpassing the male rate of 2.6%.
Looking ahead, it will be crucial for traders of the Mexican peso to monitor key data such as consumer confidence, inflation, and industrial production. Weak economic data could further erode investor confidence and weaken the peso.
Drop in Mexico’s industrial production
Industrial production in October fell by 1.2% month-over-month, significantly worse than expected. The mining and construction sectors stood out with sharp declines: mining contracted by 1.9% monthly and 6.8% annually, while construction saw a slight monthly increase of 0.5%, but an annual decline of 8.9%.
Although the energy, water, and gas sector showed moderate growth of 0.4% monthly and 1.4% annually, its contribution is insufficient to shift the overall outlook.
Manufacturing also showed weakness, with a monthly decline of 1.9%, driven by supply chain disruptions and high production costs. This scenario reinforces concerns about the Mexican economy’s capacity to sustain stronger economic development.
