Written by the Market Insights Team
Risk rally boosts Mexican Peso
Kevin Ford – FX & Macro Strategist
Mexican peso has benefited from recent risk rally in markets and renewed hopes that stiff tariffs against major trading partners might be negotiated away in the next few months. Discussions between President Sheinbaum and President Trump have been ramping up, although no agreement has been reached yet. Sheinbaum’s government has chosen not to impose retaliatory tariffs on the U.S., keeping tensions from escalating further.
A key issue for Sheinbaum—and Mexico’s economy overall—is the auto industry. When the tariffs took effect in early April, automakers like Stellantis NV Motor Corp had to halt some production in Mexico, while others reduced overtime. With the auto sector making up around 30% of Mexico’s exports, these tariffs could deal a significant blow to manufacturing.
In 2024, Mexico’s automotive industry set record highs in production and exports. The Automotive Industry Administrative Registry of Light Vehicles reported that the U.S. was the primary destination for light vehicle exports, accounting for 2,771,000 units, or nearly 80% of the total.
At the same time, funds and institutional investors have shifted their stance on the Mexican peso, moving from heavily short positions to a more neutral outlook.
The USD/MXN pair has the 200-day simple moving average (SMA) at 19.95, the 100-day SMA at 20.3438, and the 50-day SMA at 20.2505. The peso is currently trading at its weakest level since October 2024, a level last seen before President Trump’s election as the 47th president of the United States. Year to date, the peso has gained more than 6% against the US dollar.
Tariff seesaw swings on
George Vessey – Lead FX & Macro Strategist
Volatility-inducing policy statements just keep rocking investors. US equities looked poised to build on the biggest gains in two weeks, with the S&P 500 rising over 3% at one point yesterday on hopes of de-escalating trade tensions. Optimism was swiftly reined in though after President Donald Trump reaffirmed his commitment on tariffs. With macroeconomic uncertainty and geopolitical risks still unresolved, volatility across financial markets remains elevated.
The U-turns keep coming as President Trump allayed fears that he plans to fire Fed Chair Jerome Powell after rattling markets with multiple attacks against the Fed’s policy making. Risk appetite improved and was supported further after the President suggested the US is considering lower levies for Chinese products. Then, Treasury Secretary Bessent said Trump had not offered to cut tariffs on China on a unilateral basis, as market participants were dealt a reality check on a timely resolution to the US-China trade war. The inconsistent messaging continues to keep investors on edge and reluctant to hold US assets as the dollar continues to hover close to 3-year lows. Despite the attempted recovery over the past two days, the US dollar index has fallen over 8% year-to-date – marking its third worst start to a year on record.
On the macro front, the US Composite PMI fell to 51.2 in April, marking the slowest private sector growth in 16 months. Services PMI dropped to 51.4, while manufacturing unexpectedly rose to 50.7. Business expectations hit pandemic-era lows, and prices surged sharply, especially for manufactured goods due to tariffs. The outlook for the US economy remains murky, but if data continues to soften, the US exceptionalism narrative will continue fading, which will weigh further on the already beleaguered dollar.
Trumponomics isn’t a new play
Kevin Ford – FX & Macro Strategist
Trumponomics in 2025 centers on a few key pillars: tariffs and trade policies tied to strategic global bargaining, tax cuts and deregulation, and shifts in labor market and immigration policies.
Interestingly, Trumponomics isn’t a completely new play. Argentina has implemented similar measures since President Mile took office, focusing on fiscal austerity, deregulation, and cutting red tape. The results have been striking, with inflation dropping from triple digits and, perhaps more impressively, the elimination of a fiscal deficit for the first time in 123 years. However, comparisons between Argentina and the United States have their limits, particularly given the outsized role tariffs play in the U.S. context.
In the U.S., recent surveys show consumers cutting back on discretionary spending and growing increasingly concerned about job security, especially in export-dependent industries. Sentiment is declining, and inflation expectations are rising, both domestically and internationally. This raises a critical question: if Trumponomics seeks to emulate Argentina’s success, how do deregulation and the push for smaller government align with the use of tariffs? The “small yard, high fence” strategy highlights this contradiction. Tariffs are likely to drive up prices in the short term, fueling inflationary pressure and public dissatisfaction, while also risking a contraction in economic growth and broader instability. Policymaking aimed at bringing global players to the U.S. negotiating table has already had significant economic repercussions.
Although sentiment measures are not always reliable indicators of future economic activity, the uncertainty surrounding trade policies is likely to continue weighing on growth prospects in the coming quarters.
Euro’s unwind has room to run
George Vessey – Lead FX & Macro Strategist
After hitting a more than 3-year high recently just shy of $1.16, EUR/USD has pulled back to near $1.13. The 21-day moving average located at $1.1136 could act as a magnet in the short term, but the common currency continues to act as an attractive liquid alternative to the dollar in times of heightened risk aversion. For now, the uptrend remains intact, but the pace of the euro’s rally does give rise to an extended pullback in the very near term.
The April PMI was the first key sentiment gauge for the Eurozone since Trump’s ‘Liberation Day.’ The Eurozone’s figures reflect mixed sentiment amid ongoing tariff threats. It dropped to 50.1, its lowest in four months, though manufacturing showed slight improvement at 48.7, while services weakened to 49.7. France and Germany’s composite PMIs fell below 50, signalling contraction. Price pressures eased, supporting the ECB’s rate cut and raising the likelihood of further easing.
For the euro, these developments heighten risks of disinflation and stagnation. Economic uncertainty weighs on optimism, which could lead to more downward pressure on the currency if data weakens further. Until fiscal measures in Germany and European defense spending boost activity, further euro gains may be limited in the short term, but longer-term dynamics appear favourable given the regime shift in global trade and reduced demand for US assets unfolding.
Struggling UK economy bodes ill for sterling
George Vessey – Lead FX & Macro Strategist
The cautious relief rally in financial markets this week allowed GBP/EUR to reclaim the €1.17 handle briefly, having dropped to a 17-month low earlier this month. But a downside bias remains intact for the pair in the short-term so long as it remains below its 21-day moving average located at €1.1743. Meanwhile, GBP/USD has matched the recent drawdown in EUR/USD – dropping over 1% from 7-month highs above $1.34.
The stronger performance of EUR/USD compared to GBP/USD this month has caused the GBP/EUR exchange rate to decline. Initially, the ‘sell America’ trend put pressure on GBP/EUR; however, the recent EUR/USD pullback has shifted dynamics. Meanwhile, data indicates that the UK economy may be more impacted by tariff uncertainty than Europe, challenging earlier assumptions. Britain’s private sector faced its sharpest downturn in over two years, as Trump’s tariffs led to a significant drop in overseas orders, stoking concerns of a potential recession. The UK’s composite PMI tumbled to 48.2 in April, down from 51.5 in March. This figure not only fell short of economists’ expectations of 50.4 but also dropped below the critical 50 mark, signalling a contraction in economic activity.
The survey highlights mounting pressures on the UK economy amid global trade uncertainties and when we overlay the PMI differential over GBP/EUR, the figures over the past few months don’t bode well for the pound’s medium-term outlook versus the euro.
Relief rally sees gold lower and stocks higher
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: April 21-25
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.