Core Inflation In Line With Expectations
The core inflation number coming in exactly as expected at 0.22% signals a period of predictability. This data supports the central bank’s recent decision to cautiously lower its policy rate, suggesting they are not behind the curve. For us, this removes a major source of potential volatility for the next few weeks. Given this stability, selling options on the Mexican Peso looks attractive, as implied volatility is likely to decline. With Mexico’s policy rate at 9.75% and the US Fed Funds rate holding around 4.50%, the significant yield differential will continue to support the peso carry trade. We expect the USD/MXN exchange rate to remain range-bound, likely finding it difficult to break above the 17.50 level on this news. In the interest rate swap market, this on-target inflation print locks in the current view of a slow and steady cutting cycle from Banxico. The TIIE curve is already pricing this in, so we don’t anticipate major moves in front-end swaps. The play is now about positioning for data releases further down the line that could influence the pace of cuts in the third and fourth quarters. This environment is a sharp contrast to what we saw in 2025. We remember when a surprise inflation spike during the summer of 2025 forced the central bank to abruptly halt its easing cycle, causing significant market whiplash. The current on-forecast data suggests a much smoother ride for policy, at least for now.Looking Ahead
Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
