The Mexican Peso (MXN) was steady on Friday because of weakness in the U.S. Dollar (USD) following the U.S. House of Representatives passing President Trump’s controversial tax and spending proposal dubbed the “Big, Beautiful Bill.” The passage of this legislation raised new concerns around the growing U.S. fiscal deficit, giving the Peso support in what would be an otherwise volatile trading situation.
Trump’s Spending Bill Weighs on Dollar Sentiment
The bill, which is estimated to result in a huge rise in the federal deficit of $3.8 trillion from 2026 to 2034, has spooked the financial markets. Investors are reassessing their long-term considerations of U.S. economic health and borrowing costs. The suggested future changes the Federal Reserve will take to interest rates may be reconsidered as well.
Given this, USD/MXN fell below the key 19.30 part, which was previously a strong psychological support. This hints at more bearish pressures in the USD/MXN currency pair.
Trade Balance and Fed Speakers Keep Traders Alert
In terms of economic developments, Mexico’s April Trade Balance recorded a smaller-than-expected deficit of $0.088 billion, versus a forecast of $0.16 billion. This is a distinct change for Mexico from March’s surplus of $3.442 billion. While the smaller deficit does provide marginal support to the Peso, much of the discussion around the Peso will be tilted towards commentary from the key Federal Reserve officials (which may impact liquidity), as well as data from the U.S. Housing sector which could influence dollar sentiment.
USD/MXN Tests Key Support
From a technical perspective, USD/MXN is trading near 19.30, below both the 10-day SMA (19.39) and 20-day SMA (19.49), reinforcing bearish momentum. The Relative Strength Index (RSI) is hovering around 37.77, indicating continued downside bias.
Should sellers maintain control, a break below 19.23 (May low) could open the path to the October low at 19.11, with psychological support seen at 19.00. On the flip side, a rebound above 19.30 might trigger a test of short-term resistance levels at the 10-day and 20-day SMAs.
Peso Resilient Despite Rate Cut and Tariffs
The Peso continues to impress, despite a 50 basis point cut from Banxico in May. It remains firm on the back of a higher-than-expected inflation number and continuing GDP growth. On Thursday, the data revealed Mexico’s inflation number for the first half of May was higher by 0.09%, while GDP growth was up 0.2% (QoQ) and 0.8% (YoY) – all consistent with expectations.
With this good news, and potentially less reason for Banxico to cut rates further, which could also be better news for the Peso, depending on other economic factors, and given that the U.S. economic outlook is deteriorating.
Conclusion
The value of the Mexican Peso is a result of robust domestic fundamentals and an evolving level of uncertainty around the U.S. fiscal position. As long as concern over the deficits in the U.S. remains the leading story, USD/MXN could remain under pressure. The key short-term support levels of around 19.23 and 19.00 will be almost significant moments for short-sellers.
About The Author
