Mexico’s seasonally adjusted unemployment rate rose to 2.8% in March. It was 2.7% in the previous period.
The small rise in Mexico’s seasonally adjusted jobless rate to 2.8% for March is a notable signal for us. While still historically low, this marks a potential inflection point after a period of extreme labor market tightness. We see this as the first concrete data point suggesting the high interest rate environment may be starting to cool the economy.
This data complicates the picture for the Bank of Mexico, as recent figures show core inflation remains persistent at over 4%. Banxico is now caught between this slight labor market weakness and inflation that is still well above its target. Therefore, we anticipate interest rate swap markets will begin to more aggressively price in rate cuts for late 2026, even if the bank holds firm in the short term.
We believe the Mexican Peso’s strength, a major theme last year in 2025 fueled by the carry trade, is now vulnerable. The prospect of narrowing interest rate differentials with the U.S. could trigger an unwinding of these long MXN positions. In the coming weeks, we will be looking at buying out-of-the-money call options on the USD/MXN pair as a low-cost way to position for a potential depreciation of the peso.
The uptick in joblessness, combined with the recent dip in the manufacturing PMI to 51.5, points to potential headwinds for corporate earnings. A weaker consumer could pressure domestic sales, making the outlook for the IPC stock index less certain. Consequently, we are considering purchasing puts on broad market ETFs as a hedge against a possible downturn in Mexican equities.
