Wells Fargo has reported that Banxico is keeping its policy rate steady at 7.00%, showing a more aggressive approach. Inflation forecasts have been raised, and there is less certainty about future rate cuts. It is expected that Banxico will maintain this rate until 2026, which creates a favorable environment for the Mexican Peso compared to other currencies.
Banxico’s decision was agreed upon by all members of the board. The new inflation forecasts are higher, and future guidance suggests less confidence in rate cuts. This supports the expectation that the policy rate will remain unchanged until 2026.
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With Banxico maintaining its policy rate at 7.00% and showing a more aggressive stance, we believe the Mexican Peso will remain stable. The central bank prioritizes fighting inflation, and its adjusted forecasts are significantly higher. This reduces the chances of rate cuts soon, making the Peso more appealing.
The high interest rate creates an attractive environment for derivative traders. The strong yield from pesos is a key factor in its strength against currencies with lower rates. This supports our positive outlook for the peso in the coming weeks.
Long Peso Position Strategies
This decision is backed by recent data showing inflation staying consistently above target for most of 2025, ending the year at about 4.6%. With the U.S. Federal Reserve rate at 4.50%, the 2.5% rate difference in Mexico’s favor is significant. This spread offers a cushion and income for those holding long peso positions.
For derivative traders, this means favoring strategies that benefit from peso strength or stable ranges. This might involve using futures to create long MXN positions against the U.S. dollar or Japanese yen. Given the central bank’s clear guidance, selling out-of-the-money options on USD/MXN to collect premiums could be an effective strategy, betting on lower volatility.
This strategy follows the trend we observed last year. In 2025, the peso outperformed many peers, largely due to the same carry trade dynamic that kept the USD/MXN exchange rate steady. The latest statement from the central bank reinforces our confidence in this trend.
We must keep a close watch on statements from the U.S. Federal Reserve. Any unexpected aggressive comments from the U.S. could close the interest rate gap, reducing the carry advantage of the peso. A sudden change in global risk sentiment could also lead to a withdrawal from emerging market assets.
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