The Mexican peso is currently trading around 18.20 per US dollar, very close to its strongest level since July 2024 when it reached 18.17 on December 5th. This strength in the peso comes as investors reassess the timing and extent of further monetary policy easing by the Bank of Mexico in light of recent inflation data. In November, Mexico's headline inflation exceeded expectations, reaching 3.80% year over year, while core inflation accelerated to approximately 4.43% year over year. This combination suggests that rapid monetary easing by the central bank might be challenging, despite ongoing weak economic growth.
The Bank of Mexico has already initiated some policy easing from previous peaks but has chosen to adopt a cautious, meeting-by-meeting approach following recent rate cuts. This strategy keeps real Mexican policy rates appealing compared to anticipated US levels, which in turn supports peso inflows driven by yield differentials. Moreover, the US dollar is generally subdued due to increasing expectations of a more dovish stance from the Federal Reserve.
