FxWirePro: Mexican Peso likely to struggle as tariff threat to remain for years to come

The clouds of tariffs are going to hang over Mexico for years to come,

• Talking to reporters during the first meeting of Opportunity and revitalization council, President Trump announced an ultimatum to Mexico, which has somewhat cleared the next policy steps of the United States, while dealing with Mexico. Here is the publicly disclosed past of the meeting, https://www.youtube.com/watch?v=f9n2odGBNjY

Key highlights:

• President Trump cleared that if the millions of asylum seekers from Central America continue to march through Mexico without being apprehended and reaches the southern border of the United States, he would first put a penalty on cars coming to the United States from Mexico.
• He hinted that Mexico needs to ratify the newly reached agreement, known as the ‘U.S.M.C.A.’, he would move ahead with the tariffs.
• Even if Mexico chooses to live with the agreement, the tariff clouds would still remain as he announces a one-year ultimatum that if Mexico doesn’t reduce the amount of drug coming through Mexico to the United States, through the southern border, he would tariff the cars.
• And, in the worst case, the border would be closed in case the migrant caravan reaches the U.S. border.

From President Trump own words, it is clear that Mexico has no options but either to act or bear with the tariffs. After the warning, Mexico has significantly stepped up efforts on issues raised by the president.

This forever hanging clout of tariffs not likely to bear well for the Mexican peso, which is currently trading at 19.14 per USD, struggling to hold on to a bullish trend-line, which has supported USD/MXN since 2017. A break would push Peso to as low as 17.5 per USD in the short-term.  However, tariffs or border closure would push peso to 22 per USD.