Mexico\u2019s core inflation for the first half of March was 0.22%. This matched forecasts.<\/p>\n
The data covers the first half-month period in March. It reports the change in core prices over that timeframe.<\/p>\n
The core inflation number coming in exactly as expected at 0.22% signals a period of predictability. This data supports the central bank’s recent decision to cautiously lower its policy rate, suggesting they are not behind the curve. For us, this removes a major source of potential volatility for the next few weeks.<\/p>\n
Given this stability, selling options on the Mexican Peso looks attractive, as implied volatility is likely to decline. With Mexico’s policy rate at 9.75% and the US Fed Funds rate holding around 4.50%, the significant yield differential will continue to support the peso carry trade. We expect the USD\/MXN exchange rate to remain range-bound, likely finding it difficult to break above the 17.50 level on this news.<\/p>\n
In the interest rate swap market, this on-target inflation print locks in the current view of a slow and steady cutting cycle from Banxico. The TIIE curve is already pricing this in, so we don’t anticipate major moves in front-end swaps. The play is now about positioning for data releases further down the line that could influence the pace of cuts in the third and fourth quarters.<\/p>\n
This environment is a sharp contrast to what we saw in 2025. We remember when a surprise inflation spike during the summer of 2025 forced the central bank to abruptly halt its easing cycle, causing significant market whiplash. The current on-forecast data suggests a much smoother ride for policy, at least for now.<\/p>\n
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