Mexican Peso Hits 1-Month High

Macquarie doesn't believe that, in the final analysis, there won't be United States import tariffs on Canada, said Thierry Wizman, its Global Foreign Exchange & Rates Strategist.

A likelier outcome is, actually, the opposite — a tighter integration of the U.S. and Canada, once Canada's concessions are enshrined under a Conservative-led Canadian government, stated Wizman.

Canada is set to hold a parliamentary election this year and the opposition Conservatives are leading the polls.

Macquarie likes selling USD/ CAD, with a view that the pair may decline to 1.35 at mid-year.

Wizman believes that there won't be permanent new U.S. import tariffs on Mexico, either. Concessions by Mexico may include blocking China's foreign direct investments, repatriating migrants, robust border security and combating drug cartels.

Yet these concessions to the U.S. won't flatter Mexico's external accounts, so the benefit to the peso (MXN) will be limited, and Macquarie maintains a 21.75 year-end projection for .

The Mexican peso appreciated toward 20.4 per USD, recovering from a three-year low of 20.85 seen earlier this year, as recent inflation data bolstered hawkish arguments among Banxico officials, tempering expectations of continued easing of monetary policy.

While Mexico's annual headline inflation fell to 3.69% in mid-January, its lowest in four years, core inflation rebounded to 3.72%, above forecasts of 3.68%, signaling persistent price pressures.

Additionally, optimism surrounding potential moderation in US trade policies, amid the absence of immediate tariff actions by US President Donald Trump, eased market concerns.

Mexico’s solid economic fundamentals, including Banxico’s conservative 2025 GDP growth forecast of 1.2%, further supported the peso's rebound.

The Mexican peso appreciated toward 20.5 per USD, recovering from a three-year low of 20.85 tested multiple times earlier this year, amid optimism about a potential moderation in US trade policies and Mexico's solid economic fundamentals, despite persistent trade uncertainties.

The absence of immediate action on tariff threats by US President Donald Trump, despite his protectionist rhetoric, has also alleviated market concerns, enabling a modest rebound in the peso.

Furthermore, Mexico's relatively tight monetary policy, stable inflation at 3.8%, and conservative GDP growth forecast of 1.2% for 2025 by Banxico have bolstered investor confidence.

hit a new intra-day high on Tuesday of 1.4516 — the first breach of the 14500 level since March 2020 when the global pandemic was having its biggest impact on risk appetite in the financial markets, noted MUFG.

However, then retraced that move and ended the day close to unchanged, wrote the bank in a note to clients. The recovery in certainly suggests to MUFG that investors are optimistic that United States President Donald Trump won't follow through with a 25% tariff on all imports from Canada.

Trump suggested Feb. 1 as the possible date although he didn't seem 100% committed to that date but if so leaves about nine days for negotiations to take place to either cancel the threat of diluting the tariff rate or agree on carve-outs for certain sectors — crude oil and autos for starters, pointed out the bank.

Given the impact a 25% tariff would have from combined Canada/Mexico imports on the U.S. economy there is certainly a logic to investors believing this threat will be changed in some way before implementation, stated MUFG. Trump did threaten Mexico with increased tariffs in his first term in office but an agreement was reached to avoid the tariff.

The good news for Canada is that inflation is notably lower than in the U-S. which could mean there is a bigger incentive in Canada to retaliate which could too prompt a rethink from the Trump administration, added the bank.

Inflation data was released on Tuesday and the headline annual rate was a touch softer than expected at 1.8% in December. The December data confirmed that annual inflation in Canada has been at the 2.0% target or below for five consecutive months underlining the prospect of the Bank of Canada having achieved its goal.

Still, the data was flattered by a one-off tax holiday impacting prices while there are some signs of a pick-up in underlying inflation on a three-month basis.

Canada's inflation backdrop looks more favorable than in the U.S. and if Canada did retaliate the BoC would be in a relatively position than the Federal Reserve to lower rates to help support the domestic economy to offset the inevitable hit to external demand from U.S. import tariffs, noted MUFG.

Retaliation seems likely with Prime Minister Justin Trudeau stating that he supports a plan to retaliate "dollar-for-dollar" but the bank will have to gauge developments over the coming days. If there's no sign of negotiations or progress in negotiations and Trump keeps repeating his plans, it expects to see and jump notably higher.

MUFG's forecasts for Q1 and Q2 (1.4500 & 1.4400) didn't incorporate a broad-based 25% tariff. The 2020 high (1.4668) and 2016 high (1.4690) would likely be taken out quickly and a move into a 1.5000-1.6000 range (last seen in 2003) would come into play.

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0948 GMT - The Canadian dollar and Mexican peso remain at risk of falling given the threat of trade tariffs under U.S. President Donald Trump, ING's Francesco Pesole says in a note. A delay in tariff announcements is fuelling some tentative optimism, he says. The Canadian dollar and Mexican peso are about 1% higher against the U.S. dollar compared to Friday, suggesting markets are reluctant to price in the full extent of the potential tariff impact and perhaps hoping tariffs will be delayed further on some cooperation on migration. "That said, we could start to see growing pressure on Canadian dollar and Mexican peso, which are facing the most tangible tariff threat at the moment." USD/CAD trades flat at 1.4328. USD/MXN falls 0.2% to 20.5927. (renae.dyer@wsj.com)

0933 GMT - President Trump's more protectionist trade policy will likely drive inflation higher in the U.S. but not in Europe, Francois Villeroy de Galhau of the European Central Bank's governing council says. Trump has threatened tariffs on goods imported from other countries that he accuses of unfair trade practices. That will likely have an inflationary effect domestically, given the fiscal and market implications, Villeroy tells a panel at the World Economic Forum in Davos, Switzerland. But American tariffs should have little effect on European consumer prices, he says. "Our victory against inflation will be final," the Bank of France governor says. (joshua.kirby@wsj.com; @joshualeokirby)

0909 GMT - Yields on U.K. government bonds, or gilts, decline, showing little reaction to U.K. public sector finances data indicating government borrowing surpassed the forecast by the Office for Budget Responsibility. Still, concerns about rising government debt remain. Tuesday's labor-market data showed a decline in the number of payrolled people and suggests "that companies are cutting staff on the government's tax rise plans", Swissquote Bank's Ipek Ozkardeskaya says in a note. The 10-year gilt yield falls 1 basis point to 4.579%, Tradeweb data show. Sterling also shows little reaction to the public finances data, staying steady against the dollar and falling slightly against the euro. (miriam.mukuru@wsj.com)

0907 GMT - Malaysia's central bank could maintain its policy rate at 3.0% this year, supported by a robust economy, as indicated by preliminary GDP estimates for 2024, Capital Economics senior Asia economist Gareth Leather says in a note. However, the inflation outlook could be a concern, he notes. Price increases are expected to accelerate later this year due to the coming fuel subsidy reforms, which could increase retail petrol prices. This may push the headline inflation rate above 3% in 2026, which would exceed Bank Negara Malaysia's comfort zone, he says. (yingxian.wong@wsj.com)

0846 GMT - The absence of immediate cryptocurrency executive actions from the Trump administration has led to renewed volatility in bitcoin, Hargreaves Lansdown analyst Susannah Streeter says in a note. However, bitcoin remains firm and is up more than 50% since Donald Trump's presidential election victory in November on hopes that he will soon start laying out plans for a bitcoin reserve fund and other targeted support, she says. Bitcoin falls 1.8% to $104,766, having reached a record high of $109,071 on Monday, according to LSEG. (renae.dyer@wsj.com)

0837 GMT - An overwhelming 79% of investors expect the Federal Reserve to cut interest rates in 2025, versus 2% anticipating a rate hike, Bank of America's January global fund manager survey says. Two rate cuts are expected by 39% of respondents, 27% say one rate cut and 13% say 3 cuts, BofA says. Only 2% expect the Fed to raise interest rates this year. Money markets price in only little more than one cut of 25 basis points, according to LSEG. (emese.bartha@wsj.com)

0821 GMT - Russia's economy isn't as strong as it seems, says Sweden's Finance Minister Elisabeth Svantesson tells the World Economic Forum in Davos, Switzerland. Inflation in the country is much higher than Russian public figures indicate, at between 20% and 22% a month ago, she says. According to Russian statistics agency Rosstat, inflation reached 9.5% at the end of 2024. Meanwhile the country also faces labor shortages, Svantesson adds. Russian President Vladimir Putin "wants us to believe that sanctions don't work, he wants us to get tired of supporting Ukraine," she says. (cristina.gallardo@wsj.com)

0817 GMT - Trade need not be the enemy of the climate transition, World Trade Organization director-general Ngozi Okonjo-Iweala tells a World Economic Forum panel in Davos, Switzerland. "The general perception is that trade contributes to more global emissions," Okonjo-Iweala says. ""But people neglect some of the [environmental] benefits that trade brings," she says, pointing to the adoption of clean technology and renewable energies that would not be possible without global trade. She calls for greater adoption of policies that would allow countries to focus on lower-emission production, such as a global carbon tax. (joshua.kirby@wsj.com; @joshualeokirby)

0813 GMT - Europe needs to step up its military support and weapons deliveries to Ukraine, the European Commissioner for the economy, Valdis Dombrovskis, tells CNBC in an interview at the World Economic Forum in Davos, Switzerland. Dombrovskis says there was strong backing among EU officials for financial support to Ukraine and a more proactive stance on its own defense. The financing need for the country was already broadly covered for this year by the EU, he adds. (helena.smolak@wsj.com)

0803 GMT - The dollar could fall if U.S. President Donald Trump's proposed trade tariffs prove to be less tough than he was threatening during his electoral campaign, UniCredit Research analysts say in a note. This might prompt speculators to unwind long positions in the dollar, which bet on the currency rising, they say. Dollar long positions are at multi-year highs, leaving the currency exposed to a position adjustment. In his first day in office, Trump only threatened new tariffs on Canada and Mexico. This provided relief to major currencies against the dollar. The DXY dollar index rises 0.1% to 108.142. (renae.dyer@wsj.com)

0758 GMT - European Space Agency Director General Josef Aschbacher says President Trump's claim to plant a U.S. flag on Mars is a "very bold statement" and compared it to John F. Kennedy's ambition to land on the moon in the 1960s. Aschbacher, in an interview at the World Economic Forum in Davos, says that beyond technological advances, such a mission also could bring new challenges around safety, such as radiation exposure. "Challenges are good and challenges are needed for humankind in order to evoke dreams but also technologically make huge steps forward," he adds. Aschbacher says the ambition isn't surprising since Elon Musk --a close Trump ally-- has talked about how humans are a multiplanetary species for several years. "Certainly this ambition is there and it's always been driving much of his development." (emily.glazer@wsj.com)

0752 GMT - "It's a choppy time to be Britain's trade secretary," minister Jonathan Reynolds says, noting the country's vulnerability to tougher trade policy emanating from Washington under President Trump. The U.K. is a globally-oriented and intensely trade-focused country, and there is a vulnerability as well as a strength that comes with that openness, Reynolds tells Bloomberg on the sidelines of the World Economic Forum at Davos, Switzerland.(joshua.kirby@wsj.com; @joshualeokirby)

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0448 ET - The Canadian dollar and Mexican peso remain at risk of falling given the threat of trade tariffs under U.S. President Donald Trump, ING's Francesco Pesole says in a note. A delay in tariff announcements is fuelling some tentative optimism, he says. The Canadian dollar and Mexican peso are about 1% higher against the U.S. dollar compared to Friday, suggesting markets are reluctant to price in the full extent of the potential tariff impact and perhaps hoping tariffs will be delayed further on some cooperation on migration. "That said, we could start to see growing pressure on Canadian dollar and Mexican peso, which are facing the most tangible tariff threat at the moment." USD/CAD trades flat at 1.4328. USD/MXN falls 0.2% to 20.5927. (renae.dyer@wsj.com)

0415 ET - Gold futures rise on renewed tariff concerns, and sit close to their all-time high. Futures are up 0.3% at $2,767.20 a troy ounce, approaching its all-time record of $2,826.30 a troy ounce set in late October. Renewed tariff concerns--which have become an expected negotiation tool--have pushed gold prices to their highest levels since U.S. President Trump's victory in the November elections on safe-haven demand, says Pepperstone's Ahmad Assiri. Gold's strong upward momentum isn't random, but rooted in forward-looking expectations of escalating trade risks tied to tariffs, Assiri says in a note. The new administration hasn't yet discussed critical issues, amplifying market sensitivity to short-term issues, Assiri writes. Alongside safe-haven demand and risk-hedging, bullion's rise also coincides with a decline in the U.S. dollar index, Assiri adds. (joseph.hoppe@wsj.com)

0346 ET - The absence of immediate cryptocurrency executive actions from the Trump administration has led to renewed volatility in bitcoin, Hargreaves Lansdown analyst Susannah Streeter says in a note. However, bitcoin remains firm and is up more than 50% since Donald Trump's presidential election victory in November on hopes that he will soon start laying out plans for a bitcoin reserve fund and other targeted support, she says. Bitcoin falls 1.8% to $104,766, having reached a record high of $109,071 on Monday, according to LSEG. (renae.dyer@wsj.com)

0340 ET - Oil prices slip in early trade as markets digest U.S. President Trump's raft of energy policies and eye trade tariffs. Brent crude is down 0.2% at $79.14 a barrel, while WTI falls 0.3% to $75.59 a barrel. The president threatened to impose a 25% tariff on imports from Canada and Mexico and said he was considering a 10% punitive duty on China in response to fentanyl flows from the country. "The oil market's attention is slowly turning away from U.S. sanctions against Russia towards President Trump's potential trade policy," ING analysts say. "Trade and tariff risks and the potential for retaliation are growing." Meanwhile, traders are keeping an eye on supply-side news, as a rare winter storm in the U.S. south threatens to disrupt oil production and Russian oil exports dropped significantly last week following the latest batch of U.S. sanctions. (giulia.petroni@wsj.com)

0336 ET - U.S. President Trump's decision to ramp up production of liquefied natural gas is "certainly good news" for Europe, Valdis Dombrovskis, the European Commission vice president for the economy, tells the World Economic Forum in Davos, Switzerland. Europe can still put more pressure on Russia by reducing LNG imports further, the Latvian politician says. More than half of the EU's LNG now comes from the U.S., he notes. Ukraine's Western allies should focus on Russia's sanction circumvention, he adds. (cristina.gallardo@wsj.com)

0303 ET - The dollar could fall if U.S. President Donald Trump's proposed trade tariffs prove to be less tough than he was threatening during his electoral campaign, UniCredit Research analysts say in a note. This might prompt speculators to unwind long positions in the dollar, which bet on the currency rising, they say. Dollar long positions are at multi-year highs, leaving the currency exposed to a position adjustment. In his first day in office, Trump only threatened new tariffs on Canada and Mexico. This provided relief to major currencies against the dollar. The DXY dollar index rises 0.1% to 108.142. (renae.dyer@wsj.com)

0258 ET - European Space Agency Director General Josef Aschbacher says President Trump's claim to plant a U.S. flag on Mars is a "very bold statement" and compared it to John F. Kennedy's ambition to land on the moon in the 1960s. Aschbacher, in an interview at the World Economic Forum in Davos, says that beyond technological advances, such a mission also could bring new challenges around safety, such as radiation exposure. "Challenges are good and challenges are needed for humankind in order to evoke dreams but also technologically make huge steps forward," he adds. Aschbacher says the ambition isn't surprising since Elon Musk --a close Trump ally-- has talked about how humans are a multiplanetary species for several years. "Certainly this ambition is there and it's always been driving much of his development." (emily.glazer@wsj.com)

0252 ET - "It's a choppy time to be Britain's trade secretary," minister Jonathan Reynolds says, noting the country's vulnerability to tougher trade policy emanating from Washington under President Trump. The U.K. is a globally-oriented and intensely trade-focused country, and there is a vulnerability as well as a strength that comes with that openness, Reynolds tells Bloomberg on the sidelines of the World Economic Forum at Davos, Switzerland.(joshua.kirby@wsj.com; @joshualeokirby)

0251 ET - EU officials are in discussion with the U.S. administration to find a pragmatic way forward on the potential imposition of tariffs, Valdis Dombrovskis, European Commissioner for the economy, tells CNBC in an interview at the World Economic Forum in Davos, Switzerland. "If there is a need to defend our economic interests, will be responding in a proportionate way," he says. It is crucial for the EU and the U.S., who are key strategic allies, to maintain its trade and investment relationship, Dombrovskis says. (helena.smolak@wsj.com)

0248 ET - The 10-year U.S. Treasury yield is likely to fall for now, but there are many forces which could ultimately lift it above 5% in the weeks and months ahead, ING rates strategists say in a note. "We've just had a material prior move higher in yields, and typically they are followed by a test back lower again." In addition, mutual fund data flows show a resetting of duration longs for the first couple of weeks of 2025. This is a reversal for the significant preference for duration shorts into the turn of the year, they say. The market also awaits clarity on U.S. President Trump's policies. The 10-year Treasury yield edges up 1 basis point to 4.58%, according to LSEG data. (emese.bartha@wsj.com)

0247 ET - Policy direction by the Trump administration could play a dominant role in the oil market's trajectory in the short term, says Dilin Wu, Pepperstone's research strategist. On the supply side, Trump's national energy emergency declaration and his push for energy independence are significant drivers of bearish momentum, Wu writes in a note. Trump's policies could likely turn the U.S. into a net energy exporter, which may have lasting implications for global oil prices, Wu says. Traders will assess the balance between economic growth, energy security and policy risks, as more details emerge over energy production and trade agreements, Wu adds. Front-month WTI crude oil futures are down 0.65% at $75.34/bbl; front-month Brent is 0.5% lower at $78.89/bbl.(amanda.lee@wsj.com)

0216 ET - Markets seem to be comfortable as neither U.S. President Trump nor the government bond issuance wave are delivering surprises relative to what had been priced in before, says Commerzbank Research's Michael Leister. In terms of outright rates, this is most visible in the ultra-long end of the yield curve, the head of interest-rates strategy says. This is where 30-year U.S. Treasury and German Bund yields are trading 20 basis points and some 10 basis points, respectively, below last week's levels, he says. The 30-year U.S. Treasury yield trades little changed on the day at 4.81%, but down from 4.99% last week, according to LSEG data. The 30-year Bund yield is around 2.73%, down from 2.85% last week. (emese.bartha@wsj.com)