The Mexican peso weakened to above 21 pesos per US dollar on Wednesday morning as global markets reacted to the latest escalation in the ongoing trade war between the United States and China. However, the currency recovered later in the day following a significant shift in US tariff policy.

After three consecutive days of losses, the peso fell again early Wednesday, hitting 21.07 against the dollar, according to Yahoo! Finance. By 10 a.m. Mexico City time, it had rebounded slightly to 20.95.

The major turning point came later in the day when US President Donald Trump announced a temporary reduction in the country’s maximum “reciprocal tariff” rate to 10% for the next 90 days. Although the move didn’t directly affect trade with Mexico—Mexican exports have not been targeted by recent tariffs—the news boosted investor sentiment and helped strengthen the peso.

By market close, the currency had appreciated to 20.28 per dollar, according to data from the Bank of Mexico (Banxico). This marked a 2.6% gain compared to the morning’s low and a 1.7% depreciation from last Thursday’s closing rate of 19.94.

The peso’s volatility followed Trump’s announcement last week of a sweeping 34% tariff on Chinese imports. After China retaliated with matching tariffs, Trump escalated the situation again on Wednesday by raising the US tariff rate on Chinese goods to 125%. The new tariffs took effect at midnight Thursday, Beijing time.

Mexico’s financial group Monex said Wednesday that the escalating trade conflict was putting downward pressure on the peso. The firm also pointed to rising domestic inflation as another factor, with headline inflation climbing to 3.80% in March from 3.77% in February, according to national statistics agency INEGI.

Despite the slight uptick in inflation, analysts still expect Banxico to lower its benchmark interest rate at its next monetary policy meeting on May 15. The central bank last cut rates in late March, dropping its key rate by 50 basis points to 9%.