Key Moments
- Societe Generale strategists expect Banxico to keep its policy rate unchanged at 6.50% on Thursday.
- The central bank’s statement is seen as a potential challenge to current market expectations for 80bp of tightening over the next 12 months.
- USD/MXN is viewed as having an upside bias, with 17.50 flagged as a key resistance level.
Banxico Policy Outlook and Market Pricing
Societe Generale strategists anticipate that the Bank of Mexico (Banxico) will leave its benchmark interest rate steady at 6.50% on Thursday. Their attention is directed toward the accompanying communication, which they believe could confront existing market assumptions that currently reflect 80bp of additional tightening over a 12-month horizon.
| Policy/Market Indicator | Detail |
|---|---|
| Banxico policy rate expectation | Hold at 6.50% on Thursday |
| Market pricing | 80bp of tightening in 12 months |
| USD/MXN technical view | Upside bias with 17.50 as key hurdle |
Influence of Federal Reserve Policy
The strategists highlight that decisions by the Federal Reserve remain a central factor for Mexico’s monetary and market dynamics. They point to a recent shift in the United States toward a more hawkish stance, noting that:
“Fed policy remains a key input and last week’s hawkish tilt in the US may also applies the country’s trading partner.”
USMCA Review Talks and Political Risk
On the trade front, Societe Generale references the latest progress in United States-Mexico-Canada Agreement (USMCA) discussions. According to their commentary:
“The US and Mexico completed the second round of USMCA review talks covering agriculture, labour, environment and rules of origin, alongside autos, steel and aluminium.”
They describe the negotiations as moving forward, but emphasize that political uncertainty remains an overhang:
“Progress is steady, but political risk — mainly from the US, hangs over an agreement ahead of the July 1 deadline. The pact could be extended for 16 years or move to annual reviews within a 10-year window.”
USD/MXN Technical Focus
Against this backdrop, the strategists see the Mexican Peso as vulnerable versus the US Dollar, with the USD/MXN pair maintaining a constructive tone. They underscore a specific level of interest in the currency pair:
“USD/MXN retains an upside bias with 17.50 as the key hurdle.”
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