Mexico’s Deputy Governor Galia Borja said Banxico has scope to resume interest rate cuts. She referred to weak domestic demand, falling investment, and a stronger peso.
The Mexican peso remained resilient amid renewed USMCA concerns raised by USTR Greer. President Sheinbaum’s approval rating fell to 56%, the lowest since taking office.
Banxico Signals Room For Rate Cuts
Market moves affecting carry and commodity currencies were reported, including ZAR, COP, CLP, MXN and AUD. The note said spillover from the tech sector paused an earlier rise in these currencies.
Mexico’s final fourth-quarter GDP was revised up to 0.9% quarter-on-quarter from 0.8%. Annual growth for the quarter was revised to 1.8% year-on-year from 1.6%.
Inflation for the first half of February edged up to 3.92% from 3.82%. The report also referenced revised GDP data and slightly higher mid-February inflation.
With signals from Banxico’s Deputy Governor that rate cuts could resume, we see a clear dovish tilt from the central bank. This is being justified by weak domestic demand and a strong peso, suggesting policymakers are becoming more concerned with growth than inflation. The key takeaway is that the door is officially open for monetary easing in the near future.
Carry Dynamics And Options Volatility
This policy signal comes as the interest rate differential remains highly attractive for carry trades. With Banxico’s policy rate currently at 10.75% and the U.S. Fed Funds rate at 4.50%, the spread provides a significant cushion for the peso. While the latest inflation reading ticked up to 3.92%, it remains far below the policy rate, giving the board ample room to justify a cut.
We saw how the peso weathered political noise throughout 2025, particularly during the debates over judicial reforms which caused temporary market anxiety. The currency’s ability to absorb those shocks, and now the concerns over USMCA, demonstrates its underlying strength supported by remittance flows and nearshoring investment. This past resilience might be what gives Banxico the confidence to consider easing policy without fearing a currency collapse.
For traders anticipating that a rate cut will finally weaken the peso, buying out-of-the-money USD/MXN call options is a prudent strategy. This approach offers a defined risk, limited to the premium paid, while providing significant upside if a policy shift causes the peso to sell off. It allows for a directional bet on a weaker peso without being fully exposed to the spot market’s volatility.
Conversely, for those who believe the high carry will continue to attract inflows and keep the peso strong, selling cash-secured USD/MXN puts could be considered. This strategy allows traders to collect a premium, essentially getting paid to wait, and benefits from the peso remaining stable or strengthening. It is a bet on the currency’s proven resilience overpowering the central bank’s dovish language.
Given the conflicting signals of a dovish central bank and a resilient currency, implied volatility in the options market will be critical to watch. A sharp increase in volatility could signal that a significant market move is imminent, presenting opportunities for strategies that profit from price swings rather than direction alone. We should therefore pay close attention to the pricing of options straddles and strangles in the coming weeks.
