Anticipation builds ahead of the Fed(Dec 10) and Banxico’s (Dec 18) last policy meetings of 2025. After weeks of lagged macro data due to the U.S. government shutdown, recent releases, such as the September PCE price index and November’s ADP employment report—are helping to shape expectations around the path forward. In the U.S., headline inflation continues to trend moderately higher, while private payrolls show clear signs of softening, confirming a cooling labor market.
Risk appetite has picked up, with equity markets and EM currencies gaining ground and short-end USD rates rallying. The MXN extended its recent gains, supported by USD weakness and stable rate differentials. In this context, we maintain our cautious medium-term view on the peso and continue to recommend hedging around the 18.30 level, particularly as volatility remains unusually low.
On the domestic front, all eyes will be on November inflation (Dec 9) and October industrial production (Dec 12). We continue to expect Banxico to cut the policy rate by 25bp in December, taking it to 7.0%, with the easing cycle extending into 2026. We also review recent data on consumption and investment, which remain weak but could begin to recover in 2026, helped by government infrastructure plans and World Cup-related spending.
In case you missed it, last week we published our latest TIIE Radar, where we highlight the disconnect between Banxico’s cautious tone and what’s currently priced into the curve. We continue to see value in re-flattening trades, particularly in the 5Y sector, and expect further curve normalization as the cycle progresses.