Mexico’s 12-month inflation rate was 4.45% in April. This was below the 4.5% forecast.
With the April inflation data coming in at 4.45%, just under the 4.5% we anticipated, the pressure on Banxico to maintain its hawkish stance has eased slightly. This reinforces the view that the central bank can proceed with its gradual rate-cutting cycle. For derivative traders, this suggests the path of monetary policy is becoming more predictable in the near term.
Looking back at 2025, we saw how Banxico paused its easing cycle when core inflation proved unexpectedly stubborn, holding the overnight rate at 9.75% for two consecutive meetings. This new data point, however, strengthens the case for another 25 basis point cut at the June meeting. Therefore, positioning in TIIE swaps to receive fixed rates could be advantageous, anticipating a further downward shift in the yield curve.
The Mexican Peso’s trajectory is now a key focus, especially with the interest rate differential versus the US dollar narrowing. With recent US core PCE data showing inflation is still persistent at 2.8%, the Federal Reserve is unlikely to cut rates soon. This policy divergence could weigh on the MXN, making long positions in USD/MXN through forward contracts or call options a strategy to consider over the coming weeks.
This slightly lower inflation print may also dampen currency volatility, which had picked up earlier in the year. Implied volatility on one-month USD/MXN options has already eased to 10.2% from the highs we saw in March. This environment could make selling option premium, such as through risk reversals or put spreads, an attractive proposition for those expecting the peso to trade in a more defined range.
