Societe Generale’s report on the Mexican Peso (MXN) predicts that Banxico will likely keep the policy rate at 7.00%. The report addresses criticism regarding rate reductions before inflation convergence and anticipates rate cuts later in the year.
The forecast suggests 25 basis point cuts in both the first and second halves, aiming for a 6.50% rate by year-end. Seasonal trends have supported the peso in February, but further appreciation could be challenging. A break below the 17.00 long-term ascending trendline, dating back to 2008, may depend on global trades moving towards commodities.
Current Monetary Policy Outlook
We believe Banxico will maintain its policy rate at the upcoming meeting, reinforcing the cautious stance we saw throughout 2025. The latest inflation data for January 2026 came in slightly above expectations at 4.9%, giving the central bank reason to delay any cuts. This sticky inflation makes a dovish pivot in the coming weeks highly unlikely.
Given this outlook, derivative traders could consider strategies that profit from low volatility in the USD/MXN pair. Selling options premium through short-dated iron condors or strangles could be an effective approach. These positions benefit from the peso trading within a stable range, which is the expected outcome of a central bank on hold.
The 17.00 level in USD/MXN continues to be a formidable floor, supported by a long-term ascending trendline going back to 2008. While we noted seasonal peso strength in February last year, a sustained break below this key support seems challenging. The market has tested this level several times over the past six months without success.
Global Trends and Currency Stability
Further peso appreciation from here seems less dependent on domestic policy and more on global macro trends. A significant move would require a renewal of the de-dollarization and pro-commodity trades we saw intermittently in 2025. Without that global catalyst, the peso is likely to remain range-bound.
The interest rate differential between Mexico and the U.S. continues to support the peso through carry trades. With Mexico’s Q4 2025 GDP growth coming in at a robust 2.8% driven by nearshoring investments, the central bank has little pressure to cut rates. This strong economic footing gives them the flexibility to focus solely on inflation, anchoring the currency for now.
