• The Mexican Peso stabilizes after weakening for three days in a row. 
• Political changes across the border impacting Mexico have been the main driver of the Peso’s depreciation. 
• USD/MXN closes in on November high after bouncing from the base of a rising channel. 

The Mexican Peso (MXN) stabilizes on Wednesday after a three-day run of weakness spurred by a mixture of investor fears about the impact of President-elect Donald Trump’s trade and immigration agenda on Mexico, a generally risk-off tone to markets outside of the United States (US) (which tends to impact the risk-sensitive Peso disproportionately), and expectations that the Bank of Mexico (Banxico) will cut its main interest rate by 25 basis points (bps) (0.25%) at its up-and-coming meeting on Thursday. Lower interest rates are generally negative for a currency as they reduce foreign capital inflows. 

Mexican Peso weakens as headwinds gather across the border

The Mexican Peso has depreciated as markets price in the impact of Donald Trump’s proposed policy agenda on the Mexican economy. Trump is expected to implement high tariffs on Mexican goods entering the US, especially Chinese electric vehicles that are manufactured across the border in Mexico. The appointment of Mike Waltz as National Security Advisor and Marco Rubio as Secretary of State in the US are particularly bad signs from this perspective because of their known tough stance on China. Tariffs are expected to reduce demand for foreign imports, which in turn is likely to lower demand for the Mexican Peso too.