Societe Generale strategists expect Banxico to keep its policy rate unchanged at 6.50% on Thursday, with attention on the accompanying statement. The communication could challenge market pricing that implies 80bp of tightening over the next 12 months. Fed policy remains a key input for the outlook, while USD/MXN is described as retaining an upside bias, with 17.50 flagged as a key hurdle.
On trade, the US and Mexico have completed the second round of USMCA review talks, covering agriculture, labour, environment and rules of origin, alongside autos, steel and aluminium. Political risk over the agreement remains, with a July 1 deadline in view. The pact’s structure could shift, either via an extension for 16 years or by moving to annual reviews within a 10-year window.
Banxico Policy Outlook and Market Positioning
We expect Banxico to keep its key interest rate on hold at 11.00% in their upcoming meeting. The market, however, is pricing in around 75 basis points of cuts before the end of the year, a view the central bank might challenge in its statement. This difference between the bank’s guidance and market pricing presents an opportunity for traders.
Fed Policy, USMCA Risks, and Implications for USD/MXN
The U.S. Federal Reserve’s policy remains a critical factor for the peso. With U.S. inflation data from May coming in at a stubborn 3.8%, the Fed is signaling it will hold its own rates steady for longer. This reduces the pressure on Banxico to begin an easing cycle and supports a stronger dollar.
We are also watching political risks associated with the upcoming 2026 statutory review of the USMCA agreement. Any friction, particularly concerning labor or energy provisions from the U.S. side, could introduce volatility. Historically, trade uncertainty has consistently weakened the peso against the dollar.
Given these factors, we see an upward bias for the USD/MXN exchange rate in the coming weeks. Traders should watch the 18.50 level, which acts as a significant technical and psychological hurdle. A break above this could signal further peso weakness, making options that protect against a rise in the pair look attractive.
