Geopolitical uncertainty in the Middle East has kept the Mexican peso under pressure this week, with the stock market also showing weakness. Both are expected to record weekly declines.

The primary reason for the peso's pressure is investor caution regarding the prospects of U.S.-Iran negotiations. Although the peso received a temporary boost after the U.S. president announced an indefinite extension of a ceasefire agreement, the lack of substantial progress in talks has caused optimism to fade. Rising risk aversion in the market has led the peso to give up its gains. Data indicate that the peso has weakened against the U.S. dollar.

In addition to geopolitical factors, Mexico's own economic fundamentals face challenges. Market surveys suggest that uncertainty surrounding the review of the United States-Mexico-Canada Agreement (USMCA) is expected to result in Mexico's economic growth rate remaining below 2% for the third consecutive year. Recent data show that inflation slowed in the first half of April, providing room for the Bank of Mexico to continue cutting interest rates, but also reflecting weak domestic demand.

In the stock market, Mexico's benchmark IPC index has also been under pressure this week. Although shares of companies such as a major cement producer rose due to positive earnings reports, these gains were insufficient to fully offset the drag on the overall market from geopolitical concerns.

Looking ahead, market participants believe that short-term market movements will continue to be dominated by developments in U.S.-Iran negotiations. At the same time, investors are monitoring the joint review process of the USMCA, which is set to begin on July 1.