Mexico’s private spending rose by 1% quarter-on-quarter in the fourth quarter.
This was down from 1.1% in the previous quarter.
The slight dip in private spending growth for the final quarter of 2025, from 1.1% to 1%, signals a cooling of Mexico’s domestic engine. While this is not a sharp downturn, it is a clear signal of deceleration that we are watching closely. This data point adds to the case for potential weakness in the Mexican peso.
This slowdown gives Banxico more reason to consider an interest rate cut in the coming months, especially as we saw inflation ease toward the end of last year. We recall that core inflation in Mexico fell to 4.3% in early 2026, its lowest level in over two years. A rate cut would reduce the appeal of the peso for the profitable carry trades that have kept it strong.
The peso has been resilient, trading near 17.05 against the dollar, largely due to Banxico’s benchmark rate holding at a high 11.25% through all of 2025. With this new spending data, we see increased potential for a move toward 17.40 or higher if rate cut expectations build. This contrasts with the U.S. Federal Reserve, which appears to be on a slower easing path, amplifying the potential currency move.
In response, we are looking at buying call options on the USD/MXN pair with expirations in the second quarter. This provides a defined-risk way to profit if the peso weakens following future economic data or a dovish shift from the central bank. The uncertainty could also increase implied volatility, making now an opportune time to position before a potential move.
For equities, this consumer slowdown suggests caution for the Mexican IPC index, which recently hit all-time highs above 59,000 points. Companies in the retail and consumer discretionary sectors could face headwinds after a strong 2025. We are therefore considering put options on consumer-focused ETFs to hedge against a potential pullback driven by the domestic economy.
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