Mexico’s core inflation for the first half of June rose 0.19% on a fortnightly basis, coming in just below the 0.2% forecast. The print suggests underlying price pressures were marginally softer than expected over the period.
The release focused on the core measure, which strips out volatile items to gauge trend inflation. With the outcome a tenth of a percentage point under consensus, the data may feed into near-term assessments of Mexico’s inflation trajectory and the pace of disinflation.
Implications For Banxico And The Mexican Peso
The latest core inflation figure, coming in slightly below expectations at 0.19%, signals that underlying price pressures are finally easing. We see this as a key data point giving the Bank of Mexico (Banxico) more flexibility in its upcoming policy decisions. This reinforces the possibility of an interest rate cut sooner than the market currently anticipates.
This dovish signal should place downward pressure on the Mexican Peso, as the appeal of its high-yield carry trade diminishes. Data from the CFTC shows speculative net long positions on the Peso recently hit a multi-year high, suggesting a crowded trade vulnerable to a reversal. We are considering buying USD/MXN call options expiring in August to position for a weaker Peso.
Rate And Volatility Trading Opportunities
For interest rate traders, this is a clear signal to position for lower rates. The market is currently pricing in approximately 75 basis points of cuts by the end of 2026, but this soft inflation print could accelerate that timeline. We believe positioning in TIIE 28 interest rate swap receivers is an attractive way to capitalize on this view.
We also anticipate a rise in implied volatility for Peso options leading into Banxico’s next meeting. The current 1-month implied volatility for USD/MXN is hovering around 11.5%, which is relatively low compared to historical averages during periods of monetary policy shifts. This makes long volatility strategies, like straddles or strangles, a potentially effective way to trade the expected price swings.
