March 2025 Inflation Surprise And Market Reaction
We recall the inflation surprise from March of 2025, when the first-half figure came in hot at 0.62% against a 0.37% forecast. This immediately signaled that the central bank, Banxico, would need to keep interest rates higher for longer. The peso reacted by strengthening significantly against the dollar in the subsequent weeks. Fast forward to today, March 24, 2026, and we see a similar environment with annual inflation currently tracking at 4.1%, which is still stubbornly above the central bank’s target. With Banxico’s key interest rate holding steady at 10.75%, the market is pricing in potential cuts later this year. This historical parallel from 2025 suggests another upside surprise in the upcoming inflation data could quickly reverse those expectations. For currency derivative traders, this suggests a bullish stance on the Mexican peso. Positioning through short-dated call options on the MXN, or selling USD/MXN futures, could prove profitable if new data shows persistent inflation. We anticipate the USD/MXN exchange rate, currently near 17.50, could re-test the 17.20 support level seen earlier this month. In the interest rate markets, the focus should shift to the TIIE swap curve. The 2025 event caused the front-end of the curve to sell off as rate cut expectations were pushed back. A similar outcome now would make entering payer swaps on the 28-day TIIE an effective way to position for a more hawkish Banxico.TIIE Curve Positioning Implications
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