Societe Generale has released a report on the Mexican Peso (MXN), predicting that Banxico will likely keep the policy rate at 7.00%. The report responds to concerns about lowering rates before inflation stabilizes and suggests that rate cuts may happen later in the year.
They expect cuts of 25 basis points in both the first and second halves of the year, targeting a 6.50% rate by the end of the year. Seasonal trends typically support the peso in February, but further appreciation might be tough to achieve. A significant drop below the 17.00 long-term trendline, established in 2008, may rely on global shifts towards commodities.
Current Monetary Policy Outlook
We think Banxico will keep its policy rate steady in the next meeting, continuing the cautious approach seen throughout 2025. The latest inflation rate for January 2026 was slightly higher than expected at 4.9%, which gives the central bank a reason to hold off on cuts. The persistent inflation means a shift to a more relaxed monetary policy in the near future is unlikely.
Given this scenario, traders in derivatives might explore strategies that take advantage of low volatility in the USD/MXN pair. Selling options premium through short-dated iron condors or strangles could be a smart tactic. These positions benefit when the peso stays within a stable range, as is expected with a central bank maintaining its rate.
The 17.00 level in USD/MXN remains a strong support level, backed by a long-term upward trendline dating back to 2008. Even though we saw some strength in the peso last February, breaking below this key support seems difficult. The market has tested this level multiple times over the last six months without success.
Global Trends and Currency Stability
Future appreciation of the peso seems less tied to domestic policy and more influenced by global trends. A significant upturn would likely require a renewed interest in de-dollarization and pro-commodity trades, which emerged intermittently in 2025. Without such global drivers, the peso is expected to stay within a certain range.
The interest rate gap between Mexico and the U.S. continues to bolster the peso through carry trades. Mexico’s Q4 2025 GDP growth stood strong at 2.8%, fueled by nearshoring investments, giving the central bank little pressure to lower rates. This solid economic foundation allows them to focus on inflation, keeping the currency steady for now.
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