Will the Dollar Rise or Fall in 2025? USD/MXN Outlook

The behavior of the dollar in 2025 will be decisive for Latin American markets, especially in Mexico. The USD/MXN pair reflects the economic relationship between both nations, being particularly sensitive to geopolitical and monetary policy changes. Currently, analysts are questioning whether the dollar will fall or rise in 2025 against the Mexican peso, an uncertainty that will depend on multiple converging factors.

Volatility Environment: Key Factors Shaping USD/MXN

The USD/MXN pair has shown significant fluctuations in recent quarters, reaching levels close to 19.94 pesos per dollar after hitting lows in May 2024. This dollar appreciation responds to a context of political uncertainty in both countries.

Impact of the U.S. Elections

Donald Trump’s lead in the presidential polls has generated expectations of protectionist policies, particularly threats of 200% tariffs on vehicles imported from Mexico. This possibility has driven investors toward safe-haven assets, strengthening demand for dollars and weakening the peso. The question of whether the dollar will fall or rise in 2025 is heavily influenced by this factor.

Political Uncertainty in Mexico

Judicial reforms and their institutional controversies have sparked debates about Mexican political stability. This perception of relative instability affects international investor confidence, exerting downward pressure on the Mexican peso.

Fundamental Analysis: Economic Projections for 2025

Uneven Economic Growth

The International Monetary Fund forecasts a 1.3% GDP growth for Mexico in 2025, reflecting economic deceleration. In contrast, the United States is projected to grow more robustly at 2.1%, driven by resilient consumption. This economic differential suggests greater dollar strength against the peso in the short term.

Divergence in Monetary Policy

Both central banks are in rate-cutting cycles:

• Banxico: Has started rate cuts from 10.50% in September 2024, a trend that will continue in 2025. These cuts typically weaken the peso, making peso-denominated assets less attractive.

• Federal Reserve: Although also reducing rates, dollar yields will remain globally competitive, maintaining the appeal of U.S. assets.

This mismatch in monetary cycles reinforces the possibility that the dollar will rise in 2025 against the Mexican peso.

Inflationary Pressure in Mexico

Mexican core inflation is estimated between 3.7% and 3.9% at the end of 2024, not reaching the 3% target. This persistently high inflation weakens the attractiveness of the peso, while the relatively moderate U.S. inflation strengthens the dollar.

Projections from Specialized Institutions

Various analysts offer divergent perspectives on USD/MXN behavior during 2025:

The variability in these projections underscores existing uncertainty. While some forecasts suggest the dollar will decline significantly toward the end of the year, others maintain a bullish stance, reflecting the difficulty of accurately predicting future behavior.

Technical Analysis: Indicators and Short-Term Signals

Bollinger Bands and Price Dynamics

The pair oscillates around the 19.88 level, with Bollinger bands indicating moderate volatility. The price has touched the upper band, signaling recent bullish momentum, although retracements toward the moving average suggest consolidation phases. A sustained break above 20.00 could confirm an upward continuation, while drops below 19.50 would suggest corrective declines.

RSI Indicator: Neutral Territory

The Relative Strength Index stands at 53.42, reflecting a balanced market without clear overbought or oversold signals. This technical neutrality supports the idea that future movement will depend more on fundamental factors than on extreme technical dynamics.

RVI Indicator: Slight Bearish Bias

The Relative Volatility Index at 34.60 suggests a slight negative bias in short-term momentum, implying a possible correction if the pair does not hold key supports. This introduces caution in purely bullish forecasts.

Summary of Risks and Economic Impacts

For Mexico

A stronger dollar makes imports more expensive, adding inflationary pressures that affect consumers and dollar-debtors, further depreciating the peso. Mexican exports become more competitive, but imported inputs cost more.

For the United States

A strong dollar makes Mexican imports cheaper, benefiting sectors like automotive. This provides some relief from inflationary pressures in key categories.

Investment Strategies: When and How to Trade USD/MXN

Buying Opportunities (Long Positions)

Enter long positions when the price sustainably breaks above 20.00, provided RSI does not indicate overbought conditions. Monitor ongoing rate cuts by Banxico as confirmation of peso weakness. These moments offer potential gains in a dollar-strong environment.

Exit or Sell Signals

If RSI exceeds 70 or the price falls below 19.50 with confirmation from a bearish RVI, consider closing long positions. These technical levels serve as risk control points.

Optimal Trading Windows

The forex market operates 24 hours, five days a week. However, volatility amplifies during Federal Reserve announcements, U.S. economic reports, Banxico decisions, political events in both countries, and OPEC statements on energy markets.

Determinant Factors of USD/MXN Value

Interest Rates

Rising rates in the Federal Reserve strengthen the dollar. Rate hikes in Banxico attract capital to pesos, though currently both are reducing rates, favoring the dollar comparatively.

Trade Balance and Export Demand

Mexican exports to the U.S., mainly automotive, strengthen the peso. A decline in demand for Mexican goods weakens it.

Political and Institutional Stability

Stability reinforces currencies as safe-haven assets. Mexican political uncertainty negatively impacts the peso, while relative U.S. stability strengthens the dollar.

Oil Prices

As a major oil exporter, Mexico faces peso pressure amid falling oil prices. The U.S., as a net importer, experiences less direct impact on its currency.

Inflation Dynamics

Moderate inflation in the U.S. strengthens the dollar. Elevated inflation in Mexico weakens the peso, making peso assets less attractive.

Historical Perspective: Lessons from the Past

USD/MXN has experienced considerable volatility in recent decades. The Mexican debt crisis in the 1980s caused massive peso devaluation. NAFTA in the 1990s partially stabilized the relationship. Oil price drops in 2014-2015 and OPEC decisions in 2016-2018 created significant pressure. The 2008 financial crisis, U.S. elections in 2016 and 2020, and the COVID-19 pandemic caused substantial fluctuations. This historical context suggests that moments of political uncertainty, like the current ones, typically favor dollar strengthening.

Conclusions: Will the Dollar Fall or Rise in 2025?

The outlook for 2025 suggests that the dollar will rise in the short term against the Mexican peso, albeit with sustained volatility. Economic differentials, divergent monetary policies, political risks in Mexico, and potentially protectionist U.S. policies create an environment conducive to the dollar’s relative strength.

However, this appreciation will not be linear. Investors should stay alert to:

• Monetary policy decisions of both central banks
• Evolution of trade negotiations after U.S. elections
• Oil price dynamics
• Political events in Mexico affecting perceptions of institutional stability

For defensive investors, long dollar positions or dollar hedges may be prudent in this context. Short-term traders can capitalize on volatility through access to forex markets, specialized currency funds, or derivatives like futures and options. Careful risk management is essential, especially with leveraged instruments that amplify gains and losses.

In summary, although scenarios exist where the dollar will fall in 2025, the baseline probability points toward a sustained strengthening of the dollar against the Mexican peso during the year, conditioned on current geopolitical and economic factors remaining stable.