Commerzbank’s Michael Pfister argues that The Bank of Mexico's (Banxico) easing cycle, signalled by the March cut, should continue with another 25 bp reduction widely expected today. Markets price only modest near‑term easing and even some hikes by year‑end, a path Commerzbank doubts given Banxico’s dovish stance, leading the bank to project weaker Mexican Peso (MXN) and higher USD/MXN levels in coming months.

Dovish Banxico and peso implications

"Today’s decision by the Bank of Mexico (Banxico) is unlikely to come as much of a surprise. Although a small majority still expected interest rates to remain unchanged in March, the subsequent rate cut made it clear that monetary easing would continue."

"All of the economists surveyed by Bloomberg now expect another rate cut of 25 basis points."

"However, market participants seem to have some doubts, as only roughly 11 basis points of easing are priced in over the next three months. By the end of the year, interest rate hikes are expected to come back into focus."

"Given Banxico’s recently evident dovish stance, we doubt this will happen and therefore expect higher USD-MXN levels in the coming months."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)