The Mexican peso experienced dramatic fluctuations recently as the uncertainty surrounding U.S. tariffs loomed over the currency markets. On Tuesday, March 4, 2025, the peso showed slight appreciation following the heavy depreciation experienced on March 3 due to President Donald Trump's adamant declarations about enforcing tariffs on Mexico and Canada.
On March 3, after Trump stated, "No margin for Mexico or Canada," the peso depreciated 0.68 percent against the dollar, finishing the day at 20.71 units per dollar. The exchange rate gained traction throughout the day, and by the time extended trading was underway at 20:30 hours, it had reached 20.78 units. This marked a noteworthy decline from its previous closing rate of 20.5782 pesos on February 28, resulting in losses amounting to 13.94 cents, or 0.68 percent.
The introduction of the 25 percent tariffs, which Trump confirmed would take effect the following day, sent shockwaves through the financial markets. The weight of these tariffs is expected to have severe consequences for the Mexican economy, with analysts predicting potential recession scenarios. Gabriela Siller, head of economic analysis at Banco Base, indicated, "The tariffs announced could lead Mexico to economic emergency with a fall of up to 4 percent of GDP," due to the 83 percent of Mexican exports relying on sales to the U.S.
Seeking to mitigate the economic fallout, the Mexican government has taken proactive measures, deploying over 10,000 soldiers to the northern border and cooperating with U.S. authorities on drug trafficking issues. Despite this, Trump has shown little willingness to defer the tariffs, leaving the Mexican government scrambling for effective countermeasures.
Reflecting on the rapid shifts during the week, other financial institutions set the exchange rate for March 4 at 20.4333 Mexican pesos per dollar, signaling marginal improvements from Monday's position. The Banco de México observed these fluctuations, indicating the interbank rate stood at 20.4445 for purchases and 20.452 for sales on this day.
Despite hopeful constraints evident earlier on Monday, market reactions post-Trump's comments rapidly shifted sentiment. The Peso briefly appreciated against the dollar during morning trading, improving by 0.75 percent as traders speculated the tariffs might be postponed. Those hopes were dashed as the afternoon unfolded with Trump's confirmation of the tariffs. Overall, the peso stabilized back to around 20.90 units midday on March 4, reflecting the market's adjusted expectations.
The looming threat of tariffs and negative economic forecasts have not gone unnoticed by market analysts. Major firms such as Morgan Stanley warned clients of the risks associated with holding onto U.S. dollars at current inflated rates. Kit Juckes, head of currency strategy at Société Générale, remarked, "I don’t think the dollar can rise much more; it is already too expensive. But can it fall? Absolutely, especially with Trump’s actions harming the U.S. economy."
On the Canadian side of things, news similarly reverberated; the Canadian dollar dipped to its lowest since the last tariff announcement, following Trump's statements. The overall sentiment around the region reflects unrest and anticipation of future negotiations, stoked by the uncertainty inherent to Trump's economic strategies.
President Claudia Sheinbaum also commented on the unilateral imposition of tariffs, stating her government has plans to respond with both tariff and non-tariff measures later this week. These responses signal preparedness for intensifying trade discussions as well as maintaining stability for the Mexican economy affected by tariffs taking immediate effect.
With major ramifications at hand, the financial market will undoubtedly continue to witness the impactful aftershocks caused by these tariff declarations. The Mexican peso's future remains contingent upon the outcomes of these developments, alongside the cooperation between its government and U.S. authorities.