Despite rally, Mexico's peso currency faces major headwinds

MEXICO CITY: Mexico's peso reversed most of its losses from the past couple weeks on Monday in the immediate aftermath of a migration deal struck with the United States that for now removed the prospect of punishing tariffs, but major risks remain for the currency.

The peso was up more than 2% against the US dollar, reflecting mostly upbeat assessments over the agreement with Mexico's largest export market.

It was trading at 19.1880 per greenback at 11:12 a.m. local time.

However, prior to the announcement of the migration agreement with US President Donald Trump last Friday, credit agencies last week downgraded both Mexico's sovereign rating as well as that of national oil company Pemex. The state producer's high debt load and expensive plans pushed by President Andres Manuel Lopez Obrador continue to stoke investor uncertainty.

"The peso remains vulnerable to further weakness in light of the ongoing spat with the White House and absence of any rally in the oil price," said Christopher Edwards, a partner with FPP Asset Management.

He added that Pemex's status as a "political football" adds to market doubts over the company's investment plans going forward.

For months, the credit rating agencies have criticized Lopez Obrador's plan to construct an $8 billion refinery and questioned whether Pemex can significantly boost crude output while shunning private partners.

The peso had shed more than 2.5% against the dollar since US President Donald Trump issued his threat on May 30 to impose an across-the-board 5% tariff on all Mexican exports to its northern neighbor, but on Monday it had regained most of that lost value.

While the currency was on track to post one of its biggest percentage gains so far this year, the threat of US tariffs is still present.

Mexican Foreign Minister Marcelo Ebrard said on Monday that measures agreed with the United States to stem the flow of US-bound migrants entering Mexico from Central America will be evaluated after 45 days.

Trump has reiterated that the tariff plan will be reinstated if Mexico fails to meet an unspecified reduction in the flow of migrants.