Insights 
VT 
Mexico has obtained another 90-day delay of increased tariffs due to the robust relationship between its president and the US president. Although unresolved issues remain, the rapport between these leaders provides a prospect of forthcoming advancements.
The Mexican Peso is currently focused on domestic matters, with July’s inflation figures under scrutiny. The year-on-year inflation rate is anticipated to decrease, nearing the 3% target due to a base effect from last July’s price jump.
Inflation And Interest Rates
Despite expected inflation improvements, price increases in recent months in the core rate persist, with July figures predicted to only marginally drop. Consequently, Banxico is likely to reduce interest rates by 25 basis points, a decrease from previous larger cuts, influenced by the delayed tariffs.
This anticipated adjustment in the interest rate is unlikely to affect the Peso notably, as it aligns with analyst expectations. Analysts widely foresee this decision, thus minimising its impact on the currency’s positioning.
Given the 90-day pause on US tariffs, we see a window of opportunity where external risks for the peso are diminished. This is already being reflected in the derivatives market, where one-month implied volatility on the USD/MXN pair has fallen from over 14% in July 2025 to near 11% this week. For the coming weeks, this suggests a calmer, more range-bound environment for the currency.
Considering this lower volatility, we believe strategies that profit from stability, such as selling strangles, are attractive. With the Mexican Peso trading around 17.15 against the dollar, we are looking at a probable trading range between 16.90 and 17.40 through early September. Traders should consider collecting premium rather than paying for large directional bets.
Banxico’s Interest Rate Decision
The upcoming interest rate decision from Banxico is unlikely to disrupt this calm. A 25 basis point cut is widely anticipated and, we believe, fully priced in, a slowdown from the 50 basis point cuts we saw earlier in 2025. Unless the central bank delivers a surprise hold or a larger cut, the market reaction should be minimal.
Our focus now shifts from the rate decision itself to Banxico’s forward guidance and the next set of inflation prints. We are paying close attention to the core inflation rate, which has stubbornly remained above 4.3% in recent months. Any sign that core prices are not cooling as hoped could force a more hawkish stance from the central bank later this year.
This period of stability is a notable contrast to the high-alert environment we experienced during trade negotiations back in 2019, when peso volatility frequently spiked on political news. The current environment supports peso strength, but the narrowing interest rate differential with the United States warrants caution. We will be monitoring the differential as a key signal for the sustainability of any carry trade.
