Mexico’s June CPI undershot forecasts, sliding to a multi-month low and driving USD/MXN above 20.50 as Banxico cut expectations surge, placing the peso under renewed pressure ahead of the rate vote.
Mexico's annual inflation undershot forecasts in June, printing 4.8% versus a 5.1% estimate, and core CPI eased to 4.2%, according to Bloomberg. This reinforced expectations that Banxico will cut rates by 50bp at its next meeting, with swaps pricing in a 78% probability. The resulting narrowing of rate differentials between Mexican and U.S. yields sapped peso demand, lifting USD/MXN above 20.50 for the first time in three weeks.
The peso weakened sharply, pushing USD/MXN from 20.20 to an intraday high of 20.55 as traders aggressively priced in a larger Banxico rate cut, narrowing the carry trade advantage.
Resistance sits at 20.80, a breach of which could open a path to 21.00. Support holds at 20.00, and a break below would signal a quick unwinding of the bearish peso trade if Banxico surprises with a hawkish tone.
Yes, if global risk appetite remains strong and the real yield differential still attracts carry traders, the peso could find support around 20.00. However, near-term momentum favors further upside for USD/MXN given the dovish catalyst.
Mexico’s annual inflation cooled unexpectedly in June, coming in below all estimates and fueling market expectations for a 50-basis-point rate cut by Banxico. Core inflation also moderated, reinforcing the dovish shift and sending the Mexican peso lower as interest rate differentials narrowed. The softer print contrasts with hawkish stances in other Latin American economies and sets the stage for a pivotal central bank decision.
The annual headline inflation rate fell to 4.8%, missing the 5.1% consensus and slowing from 5.3% in May. Core inflation also eased to 4.2%, signaling broad-based disinflation.
The softer print clears the way for Banxico to deliver a 50-basis-point rate cut at its next meeting, as the central bank gains confidence that inflation is sustainably trending toward its 3% target.
It marks a divergence from the sticky inflation seen in Brazil and other Latin American peers, potentially enabling Banxico to ease while others hold or hike, which could reshape carry trade flows and regional currency dynamics.