• Mexican peso recovers as China’s 5% GDP growth in 2024 improves global sentiment.
• The revival of the EU-Mexico trade deal ahead of Trump’s inauguration boosts peso optimism.
• The IMF and World Bank forecast moderate growth in Mexico in 2025, citing domestic and U.S. political risks.

The Mexican peso (MXN) is recovering from weakening to a novel one-year low of 20.93 and gaining ground against the US dollar as risk appetite improves following upbeat Chinese GDP data. The USD/MXN rate is 20.72, down 0.38%.

During the Asian session, China announced that its gross domestic product (GDP) grew by 5% in 2024, meeting the government’s target for that year. Other data showed China’s industrial production exceeded retail sales while the unemployment rate rose.

As a result, risk-sensitive currencies such as the Mexican peso rose. The peso extended its rally following a Reuters report that on Friday, days before Donald Trump’s inauguration, the European Union (EU) and Mexico revived a stalled free trade agreement.

Meanwhile, the International Monetary Fund (IMF) and the World Bank have updated their forecasts for Mexico’s economy. The first estimates the growth at 1.4% in 2025, the second – slightly optimistically at 1.5%. Both institutions mentioned that the economy faces risks, such as uncertainty about recently approved reforms and Trump’s return to the White House.

Next week, Mexico’s economic report will include retail sales data, inflation data for mid-January, and GDP and economic activity for November.

Daily market update: Mexican peso rises in anticipation of Trump’s inauguration

• Mexican peso shrugs off Trump inauguration fears as USD/MXN falls below 20.80.
• However, Mexican currency is no longer out of the question. The divergence between Banco de Mexico (Banxico) and the Federal Reserve (Fed) indicates that further gains in the USD/MXN pair are ahead.
• Economists polled by Reuters revealed that GDP will grow by 1.2% in 2025 compared to 1.6% last year. Additionally, they predict that Banco de Mexico (Banxico) will reduce interest rates by at least 150 basis points to 8.50% by the end of the year.
• In the Fed’s latest Summary Economic Outlook (SEP), officials estimate the Fed will cut interest rates by 50 basis points.
• US industrial production rose 0.9% m/m, above estimates of 0.3%, muting November’s expansion of 0.2%.
• Money market futures have priced in 2025 Fed rate cuts of 42.5 basis points, according to CME FedWatch Tool data.

USD/MXN Technical Outlook: Mexican Peso Rise as USD/MXN Breaks Below 20.80

USD/MXN continues to retreat after hitting a novel yearly high of 20.93. Momentum remains bullish as shown by the Relative Strength Index (RSI), but a test of the 50-day uncomplicated moving average (SMA) should be expected if the pair breaks below 20.50. A breach of the latter will expose the 50-day SMA at 20.36, before challenging the 100-day SMA at 20.02.

Conversely, if buyers push USD/MXN above 20.90, it could pave the way for a break above the psychological barrier of 21.00. If broken, the next resistance will be the March 8, 2022 high at 21.46, followed by the psychological level at 21.50 and 22.00.