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 Mexican Peso (MXN) erased its earlier gain after US President Donald Trump stated that he would impose 25% tariffs on Canada and Mexico due to Fentanyl. The USD/MXN trades at 20.74, up 1.17%.

The Mexican peso tumbled on Monday as investors worried that trade disputes would again whipsaw markets after U.S. President Donald Trump’s overnight threat to impose steep tariffs on Colombia.

President Donald Trump’s renewed pledges to slap 25% tariffs on imports from Canada and Mexico on Feb. 1 jolted foreign exchange markets late in the New York trading session, sending currencies from both countries plunging against the US dollar.

The yen was on track for its best monthly start to the year since 2018 on Friday, helped by the view that the Bank of Japan (BOJ) is likely to keep raising rates this year while its global peers elsewhere look to ease policy.

Relatively high interest rates, close proximity to the U.S., and vast petroleum reserves are all factors that contribute to the liquidity of the Mexican peso.

Over the weekend, US President Donald Trump informed his social network of Petro’s decision, which sparked several US retaliation measures including the tariff threat. Consequently, the Mexican Peso, used as a proxy for other Latin American currencies, weakened in early trading on Monday.

Analysis of the Mexican peso: discover the challenges it faces amid trade tensions with the United States and economic uncertainties.

Most Asian markets edged up Friday at the end of a week beset by volatility after China's DeepSeek unveiled a groundbreaking chatbot, while sentiment was dampened after Donald Trump confirmed he hit Canada and Mexico with hefty tariffs.

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The Colombian peso fell as much as 1.8% on Monday but pared most losses and was recently down 0.65% near 4,200 per dollar. Yet analysts at Wells Fargo recommended shorting the currency with a target of 4,600 per dollar, nearly 9% weaker.