Mexican peso rallies after touching 3-year low as tariffs delayed

Updates prices to session close

By Rodrigo Campos and Marc Jones

NEW YORK/LONDON, Feb 3 (Reuters) - The Mexican peso rallied out of a selloff on Monday after 25% U.S. tariffs on Mexican products, expected to be imposed Tuesday, were delayed by a month as Mexico agreed to reinforce its northern border.

"Our teams will start working today in two areas: security and commerce," Mexican President Claudia Sheinbaum wrote in a social media post that announced the pause in tariffs and collaboration between both countries and triggered the peso rally.

The peso MXN= rose as much as 1.9% after earlier falling 2.9% to 21.2882 per dollar, its lowest in nearly three years. It closed the Monday session up 1.7% at 20.33 and was last trading at 20.317.

"It looks like a very positive outcome for Mexico," said Graham Stock, senior sovereign strategist for emerging markets at RBC Global Asset Management, adding the outcome shows that there is an opportunity to negotiate.

"We're going to be back here in a month's time, so it is a temporary reprieve, but certainly a better outcome for Mexico than just plowing on into 25% tariffs as of tomorrow."

Wall Street analysts had said a full 25% tariff on Mexican imports to the U.S. would sharply weaken the peso and likely tip the economy into recession.

"While the peso might appreciate further if tariffs are ultimately avoided, the persistent threat of tariffs is expected to limit any significant rally," said Pedro Quintanilla-Dieck, senior emerging markets Strategist at UBS Global Wealth Management.

The announced tariffs had been seen as the first salvo in a new trade war. Sheinbaum had ordered retaliatory tariffs, as did Canada which was also hit with levies that were as well paused for a month.

The Canadian dollar CAD= initially sank to a 22-year low of C$1.4793 per U.S. dollar and closed the session up 0.7% at C$1.4428.

(Reporting by Rodrigo Campos in New York and Marc Jones in London; Additional reporting by Ankur Banerjee; Editing by Alistair Bell and Stephen Coates)

((rodrigo.campos@reuters.com;))