Mexican peso drops 1% as Trump reiterates tariff threat By Reuters

By Rodrigo Campos

NEW YORK (Reuters) - The Mexican peso fell 1% against the dollar in a volatile session on Thursday after U.S. President Donald Trump reiterated his threat to impose 25% tariffs on Mexico and Canada, two of its top trade partners.

The peso closed 1% weaker at 20.71 per dollar, after having strengthened during the session as much as 0.5%. It started the overnight session little changed and was recently trading at 20.70 per dollar.

The Canadian dollar touched a five-year low against the greenback.

Trump on Thursday said he would likely decide by the end of the day whether to exclude Canadian and Mexican oil imports from the tariffs that he has vowed to impose on Saturday on the countries' products.

The market is taking a defensive stance towards the Mexican currency but has still not fully priced in the tariff threats according to Alejandro Cuadrado, global head of FX and LatAm Strategy at BBVA (BME:BBVA).

"The initial (market) reaction is negative, but it's not discounting a formal materialization of tariffs," he said, adding that the link to border security and drugs still gives Trump an excuse to delay implementation.

But the market is likely to remain volatile.

"Because of the different trade relationships, immigration... Canada and Mexico are still not going to be off the hook anyway,” Cuadrado said.

The Mexican currency weakened 2% on Monday after a short-lived weekend threat from Trump to impose tariffs on Colombian products put the issue back in the spotlight.

On Wednesday, U.S. Commerce Secretary nominee Howard Lutnick said Canada and Mexico could avoid the tariffs if they acted swiftly to close their borders to fentanyl trafficking.