The Mexican peso (MXN) declined 3.2% against the U.S. dollar Thursday afternoon to USDMXN 21.40, the weakest level since April 2020, after Banco de México (Banxico) cut its overnight target rate by 75 basis points to 7.50% — surprising consensus expectations of a 25 basis-point cut. The decision was 4-1 with Deputy Governor Galia Borja the sole dissenter. Banxico cited "escalating cross-border trade frictions and a deteriorated growth outlook" in the policy statement.
The cut comes 11 days after the U.S. Trade Representative imposed Section 301 tariffs of 18% on Mexican-origin automotive imports, a measure that already triggered Citibanamex to cut its 2026 Mexican GDP forecast to 1.1% from 2.4%. Goldman Sachs reduced its forecast to 0.9% Thursday after the rate decision, while JPMorgan moved to 1.3% from 2.1%. Banco Santander lowered to 1.4% from 2.5%.
Equity and Bond Spillovers
Mexican equities sold off sharply: the iShares MSCI Mexico ETF (EWW) fell 4.6% in U.S. trade, the IPC index in Mexico City closed down 3.8%. Specific sectors hit hardest: Grupo Financiero Banorte (GBOOY) -5.4%, Cemex (CX) -4.2%, América Móvil (AMX) -2.8%, Walmart de México (WALMEX.MX) -3.6%. The U.S.-listed FEMSA (FMX) lost 4.8%. Mexican government 10-year bond (M10) yields jumped 22 basis points to 9.84%, the steepest single-session move since the August 2024 election week.
The U.S. listed automotive supply chain reaction was bifurcated: General Motors (GM), which manufactures roughly 22% of North American volume in Mexico, declined 2.6%; Ford Motor (F) lost 1.8%. Stellantis (STLA