Peso Rallies as Traders Bet on Sheinbaum in USMCA Talks

Alice Winters

Traders' Opinions

Economic

Political

Forex

Summary:

Mexico's peso leads emerging markets, but a critical USMCA review poses a decisive test for its surprising rally.

The Mexican peso is one of the world's best-performing emerging market currencies this year, yet it faces a critical test this summer: a high-stakes review of the USMCA trade pact. With Donald Trump threatening new tariffs, many currencies would falter, but investors are betting the peso’s rally has room to run.

The peso has climbed more than 4% in 2024, buoyed by powerful global tailwinds. The currency's strength is fueled by carry trades, where investors borrow in low-interest currencies to invest in Mexico's high-yielding assets. A softer U.S. dollar and soaring commodity prices have provided additional momentum.

Now, traders are increasingly placing their confidence in President Claudia Sheinbaum's ability to navigate the upcoming trade negotiations with the United States and Canada.

The Bull Case: A Path to 15 per Dollar?

Optimism around the peso is backed by some aggressive forecasts. Jason Schenker, president of Prestige Economics and a top-ranked peso forecaster by Bloomberg, believes positive surprises in the trade talks could propel the currency significantly higher.

"Upside surprises in trade talks could push the peso to 16 to the dollar very easily, maybe even a 15 handle in the next 12 to 18 months," Schenker said. The currency currently trades around 17.3.

This confidence reflects a belief in the deepening economic ties between Mexico and the U.S. "It might take a while for everything to be fully hashed out," Schenker noted, but he expects cooperation and economic integration to accelerate over time.

President Sheinbaum has also highlighted the peso's performance as a sign of stability. "The peso wouldn't be where it is if there weren't certainty," she said at a press conference on January 2, referring to the outlook for the economy and its trade relationship with the U.S.

Key Risks: Volatility and Crowded Trades

Not everyone shares this bullish outlook. Analysts at BBVA Mexico caution that the USMCA review will inevitably introduce volatility, which could weigh on the peso.

A more significant concern is speculative positioning. According to a note from strategists led by Ociel Hernandez, bets on the peso have reached their highest level since 2024. This makes the currency highly "vulnerability to any deterioration in sentiment," meaning any negative headlines could trigger a sharp reversal.

While the trade talks may not derail the currency long-term, investors should brace for turbulence as negotiations unfold.

Global Tailwinds Powering the Rally

The peso's strength isn't solely a domestic story. It's part of a broader trend lifting assets across developing nations as the U.S. dollar sinks to a four-year low.

Latin American currencies, in particular, have led gains this year. Ivan Riveros, a strategist at Citigroup, attributes this to a rally in commodities and a "huge wave into carry." This trend is widely expected by major banks to continue into 2026, providing a solid foundation for the peso.

Luis Estrada, a strategist at RBC Capital Markets, predicts the peso could strengthen to 17 per dollar this quarter. He believes that if the dollar continues to weaken, the market will likely look past the immediate risks associated with the USMCA negotiations. For now, the powerful momentum from global macro trends appears to be overriding political uncertainty.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Ukadike Micheal

Remarks of Officials

Commodity

Political

Economic

Traders' Opinions

A new trade agreement between India and the European Union will not alter the bloc's controversial carbon border tariff, EU officials have confirmed. The decision leaves the policy in place despite sharp criticism from New Delhi, which has warned the levy could disrupt its steel trade.

The EU's Carbon Border Adjustment Mechanism (CBAM) began its initial phase this month, imposing costs on high-carbon imports like steel and cement. An EU official stated plainly that "nothing will be phased out in terms of CBAM's implementation."

No Special Exemptions for India

During negotiations, India expressed concern that the EU might offer exemptions to other partners, such as the United States under a potential deal with President Donald Trump.

However, Brussels has made it clear that no special treatment is on the table. A second EU official confirmed the bloc declined to change the levy or offer more flexible rules for Indian companies.

Instead of concessions, the EU and India agreed to hold technical discussions about the carbon tariff. The EU also committed to not granting other countries more favorable treatment than India under the scheme. This pledge, however, simply reaffirms existing EU legislation, which already prohibits discriminatory application of the CBAM.

"We have neither the intention, nor even the possibility to start discriminating between countries when we implement the CBAM," one official explained.

Understanding the EU's Carbon Border Levy

The EU designed the CBAM to create a level playing field between imported goods and those produced within the bloc, where local factories must already pay for their CO2 emissions.

The policy has drawn criticism from major trading partners, including South Africa and Brazil. They argue the tariff unfairly penalizes developing economies that lack the resources to meet the EU's environmental standards.

What the Trade Deal Delivers

While the carbon tariff remains unchanged, the new trade agreement does offer some benefits for India. The EU has agreed to provide €500 million in support to help India's transition to a lower-emission economy.

Additionally, India will be able to export 1.6 million metric tons of steel to the EU duty-free, which accounts for roughly half of its annual shipments to the bloc.

Despite these provisions, industry analysts expect the CBAM will likely curb Indian steel exports to Europe over the long term. This could push Indian steel mills to find new buyers in markets across Africa and the Middle East. The carbon levy will be phased in gradually, meaning importers will initially only face costs on a limited portion of their products' emissions.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Adam

Commodity

WTI Crude Oil Navigates Key Technical Levels Amid Supply Uncertainty

WTI crude oil futures are putting in a mixed performance on Tuesday as traders continue to straddle the 200-day moving average at $60.51. Gains are being capped by oversupply, while the market remains underpinned by worries over a potential supply disruption in Iran. The result is a more neutral tone as competing forces offset each other.

Bullish Setup Awaits Catalyst as Dip Buyers Emerge

The set up is there for an upside breakout, but the move needs a good catalyst to get it going. Traders are also coming in on the dips which suggests real buyers have been coming in since the first week of the new year.

Kazakhstan Production Resumption Threatens Price Support

Overnight, attention shifted to the resumption of supply from Kazakhstan. According to reports, the country is poised to resume production from its biggest oilfield, its energy ministry said on Monday, though industry sources said volume was still low, Reuters reported.

Near-term supply is expected to improve now that the CPC, which operates Kazakhstan’s main exporting pipeline, has returned to full loading capacity at its terminal on the Russian Black Sea coast, after maintenance was completed at one of its three mooring points. This should put downward pressure on prices.

Extreme Weather Creates Conflicting Supply Signals

A few outside factors are also impacting prices on Tuesday. Some traders are reacting to profit-taking in the heating oil market, which spiked higher due to the cold weather hitting the East Coast. However, some of the selling in crude oil was being offset by a loss of production in the U.S. as severe cold and snow impacted the country from Texas to Maine, straining energy infrastructure and power grids. According to reports from traders and analysts, U.S. producers lost up to 2 million barrels per day, or roughly 15% of national production over the weekend.

Refinery Disruptions and Stock Drawdowns May Support Prices

Daniel Hynes, an analyst at ANZ, raised concerns about fuel supply disruption, saying several refineries along the U.S. Gulf Coast reported issues related to the freezing weather. Meanwhile, Reuters is reporting that analysts are predicting significant drawdowns in oil stocks in the coming weeks, which may boost prices.

Middle East Tensions Provide Underlying Price Support

Despite the subdued trade the last couple of days, supply risks caused by tensions in the Middle East after President Trump dispatched naval assets to the region, continued to underpin prices. Essentially, geopolitical risks exist, but they don’t appear to be simmering or in a position to escalate.

Technical Analysis Points to Uptrend with Critical 200-Day Level

Daily March Crude Oil Futures

echnical analysis reveals an uptrend based on both swing charts and moving averages. The swing charts show a pattern of higher tops and higher bottoms, which is the classic definition of an uptrend. The market is also trading on the strong side of both the 50-day moving average at $58.39 and the 200-day moving average at $60.51, although it is struggling to maintain bullish momentum above the latter.

The 200-day moving average appears to be the level to watch. Look for the bullish tone to continue on a sustained move over this indicator, and a neutral tone under the 200-day and above the 50-day.

Source: fxempire

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Edward Lawson

Energy

Remarks of Officials

Commodity

Political

Economic

Canada is actively working to diversify its energy exports beyond the United States, with India emerging as a primary target for increased sales of oil, gas, and uranium. This strategic shift was highlighted by Canadian Energy Minister Tim Hodgson during a conference in India on Tuesday.

Speaking at the Indian Energy Week conference in Goa, Hodgson described Canada's heavy reliance on the U.S. market as a "strategic blunder," signaling a clear opportunity to strengthen energy ties with India.

A New Focus on the Indian Market

Hodgson reiterated the government's ambition for Canada to become an "energy superpower," stating that this goal requires trading with major global energy consumers like India.

"If Canada wants to be an energy superpower, we need to be trading our energy and natural resources with one of the world's largest energy markets: India," he posted on the social media platform X.

The minister emphasized the significance of his visit, noting it marked Canada's first federal ministerial presence at India Energy Week and the first formal energy dialogue between the two nations in eight years.

He connected these diplomatic efforts to domestic infrastructure development, explaining that new projects at home will enable Canada to sell its products globally and forge "a new path for a stronger, more sovereign Canada."

Building Infrastructure for Global Reach

This pivot toward Asia is part of a broader strategy to establish new export routes. The move signals a clear intent to boost energy exports to Asia from Canada's West Coast, positioning India—a key driver of future global oil and gas demand—as a priority destination.

Hodgson confirmed that infrastructure is being developed to support this strategy. "We're now building pipelines to the West Coast. We have three pipelines built here, looking at building more," he stated at the forum.

This initiative follows a major energy and trade partnership Canada signed with China, reflecting a wider move to diversify its international partners.

What the Canada-India Partnership Entails

Although Canada launched its first LNG export project, LNG Canada, last year, it does not currently export liquefied natural gas to India. However, this is expected to change.

According to a draft joint statement on energy reviewed by Bloomberg News, the two countries are expected to formalize their relationship. The agreement will likely involve a pledge for:

• Increased Canadian exports of crude, LNG, and LPG to India.

• More Indian fuel exports to Canada.

This development marks a significant step in Canada's quest to reduce its dependency on the U.S. market and solidify its position as a global energy supplier.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Adam

Commodity

Gold rose for a second consecutive day, holding above $5,000 an ounce as geopolitical risks and a flight from sovereign bonds and currencies extended the metal’s rally.

Bullion climbed as much as 1.8% on Tuesday for a seventh straight day of gains, while silver jumped more than 9%. Strong investment demand has sent precious metals sharply higher this month, with silver up 57% since the start of January. Gold and platinum have also posted significant advances.

Recent weeks have seen a revival of the so-called debasement trade, as investors retreat from currencies and Treasuries. A massive selloff in the Japanese bond market is the latest example of concerns over heavy fiscal spending, while speculation that the US may intervene to support the yen has weighed on the dollar, making precious metals cheaper for most buyers.

The Trump administration’s actions — threats to annex Greenland and military intervention in Venezuela, as well as renewed attacks on the Federal Reserve’s independence — have also unsettled markets.

On Sunday, the president threatened to hike tariffs on South Korean goods, citing what he said was the failure of the country’s legislature to codify a trade deal. The warning followed a threat over the weekend to impose 100% tariffs on Canada if Ottawa reaches a trade agreement with China.

Gold Extends Gains Above $5,000 as Debasement Trade Gathers Pace_1

America’s growing isolation from other nations is prompting many investors to cut holdings of dollar assets and shift into gold, according to Europe’s largest money manager, Amundi SA.

“Gold in the long term is a very good protection against debasement and a good way to maintain some purchasing power,” Vincent Mortier, Amundi’s chief investment officer, said in a Bloomberg Television interview.

Gold’s appeal is also showing up in positioning data, with options traders bracing for further gains in a market where few are willing to bet against the rally. Implied volatility on Comex futures climbed to the highest since the peak of the Covid-19 pandemic in March 2020, while volatility on State Street’s SPDR Gold Shares — the world’s largest bullion-backed exchange-traded fund — has also moved sharply higher.

“Gold’s continued rise reflects investment motives which may be persistent: higher reserve allocations, and investors raising allocations to non-dollar and real assets,” analysts at Deutsche Bank AG wrote in a note Monday, raising their forecast to $6,000 an ounce by year-end.

Silver, meanwhile, moved toward an all-time high above $117.71 reached in the previous session, when it posted its biggest intraday jump since the global financial crisis in 2008. The rally has been supported by strong physical demand and speculative interest in a relatively illiquid market, with signs that buyers in China are leading the move.

Extreme price swings in silver have driven heavy trading volumes in iShares Silver Trust, the largest silver-backed exchange-traded fund, with almost $40 billion in turnover recorded on Monday.

That’s almost on a par with the State Street SPDR S&P 500 ETF and exceeds the $23 billion of trading in Nvidia stock or Tesla’s $22 billion in turnover. A few months ago, daily trading in the silver ETF was about $2 billion, before it increased to around $10 billion in late December.

Gold rose 1.5% to $5,081.17 an ounce as of 12:14 p.m. in London. Silver advanced 7.8% to $111.89 Platinum climbed 3.3% and palladium was up 3.9%. The Bloomberg Dollar Spot Index edged 0.1% lower.

Source: Bloomberg

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King Ten

Data Interpretation

Central Bank

Remarks of Officials

Economic

Traders' Opinions

Russia's central bank is grappling with conflicting signals on inflation from businesses and consumers ahead of its crucial interest rate decision on February 13. While a rate cut was widely expected this year to stimulate an economy that slowed to 1% growth, fresh price pressures are complicating the outlook.

Business and Household Inflation Expectations Diverge

Two key surveys, one of businesses and one of households, are painting a confusing picture for policymakers. These polls are critical gauges for the central bank as it charts its course on monetary policy.

Business Pessimism Hits a Post-2022 High

A recent poll of Russian businesses reveals that price expectations have surged to their highest level since the early months of the military action in Ukraine in 2022. Companies are now projecting a 2026 inflation rate of 9.3%, more than double the official government forecast of 4% to 5%.

Household Views Remain High but Stable

In contrast, household inflation expectations held steady at 13.7% in January, matching the December figure after rising in the previous two months. However, this highlights a significant gap with official data. The same poll showed that the public's perceived inflation rate is 14.5%, far above the official annual rate of 6.5%. This deep-seated mistrust of official statistics helps explain why Russia's central bank maintains one of the world's highest real interest rates.

The Policy Dilemma: To Cut or to Hold?

The recent spike in prices, driven by a government decision to raise the value-added tax (VAT) to 22% on January 1, has cast doubt on earlier declarations that inflation was defeated. This has left analysts divided on the bank's next move.

Andrei Melaschenko of Renaissance Capital noted that the acceleration in prices through December and early January makes holding the rate steady a more probable outcome. "The option of keeping the rate unchanged [is] more likely at the moment," he said.

This view challenges earlier market consensus. A Reuters poll from December showed analysts anticipated the central bank would lower its key rate from the current 16% to 15% in the first quarter of the year.

Balancing Short-Term Spikes and Long-Term Growth

The central bank has previously signaled that it views the inflation surge from the VAT hike as a one-off event with short-term effects. Officials have also pointed to the positive long-term impact on the government's budget balance.

However, some experts warn against an overly aggressive response. Analysts at BCS brokerage argued that keeping rates high to fight a temporary price shock could backfire. "An excessively strict response to short-term effects... could significantly intensify the slowdown in the economy in the medium term," they stated.

Following the upcoming meeting, the bank's next rate-setting decision is scheduled for March 20.

To stay updated on all economic events of today, please check out our Economic calendar

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Adam

Stocks

European stocks were broadly higher on Tuesday, as investors reacted to the European Union’s landmark trade deal with India and braced for a flurry of corporate earnings.

The pan-European Stoxx 600 was last seen 0.3% higher, with most sectors and major bourses in positive territory.

Indian Prime Minister Narendra Modi announced on Tuesday that India and the EU had closed a “landmark” free trade agreement, touted as the “mother of all deals.” The agreement represents about 25% of global gross domestic product and about a third of global trade.

The EU’s biggest exports to India are machinery, transport equipment and chemicals, according to the European Council. The bloc’s biggest imports from India are machinery, chemicals and fuels.

Europe’s Stoxx Chemicals index was last seen trading 0.8% lower, while the trade-sensitive autos sector shed 0.7%. Regional industrials stocks added 0.1%.

Earnings season is getting underway again with regional investors keeping an eye on the latest financial reports from ASML, Volvo, LVMH and Deutsche Bank, among others, this week. On Tuesday, Atlas Copco, Sandvik and Logitech International are due to report.

Stock moves

Looking at individual stocks, Puma jumped 8.6% after China’s Anta Sports confirmed it would buy a 29% from France’s billionaire Pinault family for 1.5 billion euros ($1.78 billion).

Swedish medical equipment maker Getinge slipped toward the bottom of the regional index, down 6.5% after the firm reported a slight drop in order intake for the fourth quarter of 2025. Full-year revenue came in at 34.97 billion Swedish kronor ($39.1 billion), slightly below expectations set out in a consensus compiled by LSEG.

British bootmaker Dr Martens shed 12% after the company posted disappointing quarterly results and forecast roughly flat revenue growth for 2026. Revenue fell 3.1% to £251 million ($343 million) in its fiscal third quarter, led by a 7% drop in direct-to-consumer sales as the company scaled back its promotions. Wholesale revenue, however, increased 9.3%.

“This is a year of pivot, as we make the necessary changes to our business to set us up for future sustainable growth,” Chief Executive Ije Nwokorie said in a statement alongside the results, adding that he is “laser focused” on executing Dr Martens’ strategy of reducing discounts, driving growth in other products, opening in new markets, and simplifying its operational model.

South Korea tariffs

There’s been more global trade uncertainty overnight after U.S. President Donald Trump took aim at South Korea Monday, saying he would increase tariffs on Asia’s fourth-largest economy.

Trump said on Truth Social that the country’s legislature has not approved Seoul’s trade deal with Washington, and that tariffs on South Korean autos, pharmaceuticals and lumber would rise from 15% to 25%. Shares of South Korean autos fell sharply but pared losses overnight.

S&P 500 futures were near the flatline overnight after the major averages started the busy earnings week on a positive note. Investors are also waiting for the Federal Reserve’s rate decision later this week.

The central bank is widely expected to keep its key rate at a target range of 3.5% to 3.75%, but traders will search for clues on when future cuts may come.