Will the dollar go down or up in 2025? Complete analysis of the USD/MXN pair

The behavior of the USD/MXN exchange rate in 2025 will depend on multiple economic, political, and monetary factors. To understand whether the dollar will decline or rise against the Mexican peso, it is essential to analyze both the macroeconomic situation and the technical indicators that drive the pair’s dynamics.

Current Outlook for USD/MXN: Volatility Status

The USD/MXN pair, representing the relationship between the US dollar and the Mexican peso, has experienced considerable volatility in recent months. It is currently trading near 19.94 pesos per dollar, after reaching lows in May 2024 of 16.31 and highs of 20.08. This dollar appreciation reflects the uncertainty affecting both US and Mexican markets.

The year-over-year variation of USD/MXN reaches +9.36%, showing that the dollar has strengthened significantly. The 52-week range (16.2559-20.1520) demonstrates the breadth of movements characterizing this pair. With a typical spread of 5 pips and 24-hour trading hours from Monday to Friday, it offers multiple opportunities for traders interested in maximizing currency movements.

Determining Factors for 2025: Will the Dollar Fall or Rise

Contrasting Economic Dynamics

Growth prospects diverge significantly between the two nations. Mexico faces a more moderate outlook, with the International Monetary Fund projecting GDP growth of 1.3% for 2025, while BBVA Research estimates 1.0%. This slowdown is due to weak domestic demand and lower formal employment growth.

In contrast, the United States presents more robust expectations. Vanguard anticipates a GDP growth of 2.1% in 2024, supported by solid consumption and a resilient labor market. This growth differential tends to strengthen the dollar against the peso, as investors seek refuge in more dynamic economies.

Monetary Policy: The Key Piece

The dollar’s behavior will largely depend on monetary policy decisions. Banxico began a cycle of interest rate cuts, reaching 10.50% in September 2024. Further cuts are expected throughout 2025, which typically weakens the peso by reducing the attractiveness of peso-denominated assets for foreign investors.

Meanwhile, the Federal Reserve has also started its rate reduction cycle, executing a 50 basis point cut in September 2024. Projections suggest more cuts in late 2024, bringing rates to a range of 4.25%-4.50%. Although this represents a reduction, dollar asset yields will remain globally competitive, maintaining the dollar’s relative strength.

Political Uncertainty and Elections

The US presidential elections in November 2024 introduce a crucial volatility factor. Donald Trump’s lead in polls has raised concerns in markets, especially due to his protectionist tariff proposals, including threats to impose 200% tariffs on imported vehicles from Mexico. This potential policy could significantly weaken the Mexican economy, depress the peso, and strengthen the dollar.

In Mexico, judicial reform promoted by President Claudia Sheinbaum has created institutional uncertainty, affecting perceptions of political stability. This reduces the attractiveness of Mexican assets for international investors.

Inflation and Expectations

Vanguard estimates that core inflation in Mexico will remain between 3.7% and 3.9% by the end of 2024, not reaching the central bank’s 3% target. Persistent inflation continues to weaken the peso, as it reduces the purchasing power of the Mexican currency and its appeal to investors.

Exchange Rate Forecasts for 2025

Projections from multiple specialized institutions regarding whether the dollar will decline or rise in 2025 show considerable variability:

These forecasts reflect the complexity of accurately predicting the pair’s behavior. Some analysts anticipate continued dollar appreciation (Longforecast and CoinCodex project significantly higher levels), while others suggest consolidation or correction (Gov Capital, Wallet Investor, and Tradersunion).

Technical Analysis: Signals on Future Movements

Bollinger Bands and Price Dynamics

Bollinger Bands, based on a 20-period moving average, indicate current moderate volatility. The price has recently touched the upper band, signaling bullish momentum. However, a retracement toward the moving average suggests a possible short-term consolidation phase. A sustained breakout above the upper band would support further dollar appreciation, while a move below the moving average would indicate a correction.

RSI Indicator: Neutral Position

The RSI (Relative Strength Index) stands at 53.42, reflecting a neutral market stance. This reading suggests the pair could move sideways in the short term without a clear trend. If RSI exceeds 70, overbought conditions would be indicated, potentially signaling a correction. A drop below 30 would indicate oversold conditions, possibly leading to bullish rebounds.

Relative Volatility Index (RVI)

The RVI, which measures trend momentum, is at 34.60, indicating a slight bearish bias. This suggests that short-term momentum is negative, reinforcing the possibility of a correction if the pair does not stay above key support levels.

Economic Impact of USD/MXN: Who Benefits and Who Loses

For Mexico

A rising dollar against the peso makes imports more expensive, generating inflationary pressures that affect consumers and companies with dollar-denominated debts. Simultaneously, Mexican export companies benefit from favorable exchange rates. However, the increased cost of imports generally dominates the negative impact on the overall economy.

For the United States

A strong dollar makes Mexican imports cheaper, benefiting sectors like automotive and easing internal inflation pressures. This benefits US consumers by lowering prices of imported goods.

Historical Context: Past Patterns

The USD/MXN relationship has historically shown recurrent volatility. The Mexican debt crisis of the 1980s caused significant devaluations. The North American Free Trade Agreement (NAFTA) in the 1990s stabilized the currency through increased foreign investment. The decline in oil prices in 2014-2015 and OPEC decisions in 2016-2018 had significant impacts due to Mexico’s dependence on oil exports.

The global financial crisis of 2008, US elections in 2016 and 2020, and the COVID-19 pandemic caused substantial fluctuations, demonstrating that macroeconomic and political events create major movements in the exchange rate.

Key Factors Continuing to Influence

Interest Rates

In the US, rate hikes by the Federal Reserve strengthen the dollar by attracting capital into US assets. In Mexico, rate increases by Banxico temporarily attract investors, strengthening the peso. Given the current trend of rate cuts in both jurisdictions, the rate differential favors the dollar.

Trade Balance

Mexican exports, mainly to the US, strengthen the peso when robust. Trade deficits or declining demand for Mexican goods weaken the currency. The US, as a global reserve currency issuer, is less affected by trade deficits.

Political and Institutional Stability

Political stability reinforces the dollar as a safe asset. Political instability in Mexico generates investor uncertainty, depressing the peso.

Oil and Commodity Prices

Mexico, as a major crude exporter, sees its currency pressured when oil prices fall. The US, as a net importer, experiences less direct pressure.

Investment Opportunities: How to Trade USD/MXN

Investment Modalities

Trading USD/MXN is mainly done through Forex platforms operating 24 hours from Monday to Friday. Investors can participate by buying and selling the pair directly in currency markets. Alternatively, specialized currency investment funds offer indirect exposure. Derivative instruments like futures and options also allow speculation on price movements.

Optimal Trading Times

Liquidity and volatility vary depending on the trading session. Higher activity coincides with Federal Reserve announcements, US economic reports, political events in both countries, and energy sector statements such as OPEC announcements. These events create opportunities for those seeking to capitalize on significant price movements.

Conclusion: Outlook for 2025

The USD/MXN outlook in 2025 is characterized by volatility driven by multiple pressures. Politically, US elections and Mexican institutional situations generate uncertainty. Economically, growth differentials favor the dollar, while monetary policy rate cuts exert mixed pressures.

Technical analysis suggests short-term consolidation, with upside potential if key resistances are broken. The question of whether the dollar will decline or rise in 2025 is answered by multiple scenarios, but the dominant trend points toward relative dollar strength, especially if uncertainties in Mexico persist.

For short-term investors, volatility offers significant opportunities. For long-term strategies, monitoring monetary policy developments in both jurisdictions, Mexican political dynamics, and oil price movements is crucial. A global uncertainty context could keep the dollar as the preferred safe-haven asset, supporting its strength against the Mexican peso.