Mexican Peso Plummets as Trump Imposes 25% Tariffs on Mexico

MEXICO CITY, Mexico — The Mexican peso faced significant depreciation on Monday, February 2, 2025, following U.S. President Donald Trump‘s announcement of a 25% tariff on Mexican and Canadian goods. The peso fell 2.56% against the dollar, with the interbank exchange rate reaching 21.20 pesos per dollar, according to Bloomberg data.

The tariffs, set to take effect on Tuesday, have sparked concerns over Mexico’s economic stability. Analysts from BBVA predict the peso could weaken further, potentially surpassing 24 pesos per dollar in the short term. This would mark a sharp depreciation from Friday’s closing rate of 20.6871 pesos per dollar.

BBVA estimates that the peso could stabilize at around 23 pesos per dollar by year-end, contingent on the evolution of trade policies between the U.S. and Mexico. However, the bank warned that prolonged tariffs could push the exchange rate to historic highs and potentially trigger a recession in Mexico.

“If a 25% tariff is implemented, Mexico’s GDP could contract by 1.5% this year,” BBVA analysts stated. “This scenario assumes a price elasticity of Mexican exports at 0.67, compounded by a significant drop in investment due to heightened uncertainty.”

The Bank of Mexico (Banxico) is expected to adopt a cautious stance, delaying interest rate cuts until late in the third quarter. While peso depreciation could fuel inflationary pressures, weak demand may offset some of these effects, allowing Banxico to reduce rates in a low-growth environment.

Gabriela Siller, Director of Economic Analysis at Banco Base, noted that the peso’s reaction to the tariff announcement may not fully materialize until Tuesday, as Monday is a public holiday in Mexico. “If tariffs are imposed, the exchange rate could rise to 23 pesos per dollar,” Siller warned. “If sustained, this could lead to record highs and economic contraction.”

The White House defended the tariffs as necessary to hold Mexico, Canada, and China accountable for their commitments to curb the flow of illicit drugs into the U.S. However, BBVA cautioned that a 25% tariff would severely impact Mexico’s investment climate and competitiveness, potentially derailing the USMCA trade agreement.

As of Friday, major Mexican banks reported dollar exchange rates ranging from 20.40 to 21.21 pesos. Banxico’s official exchange rate stood at 20.6068 pesos per dollar on January 31, 2025.