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Bi-Weekly CPI Data Support May Rate Cut Pause

MEXICO
  • Headline inflation rose by 0.09% 2w/2w in the first half of April as a further 0.16% increase in core prices offset a small drop in non-core prices. Within the later, perishable food prices rose by 1.68%, offsetting lower electricity tariffs due to seasonal subsidies. Within core, goods prices edged up by 0.24%, but services rose by just 0.07%.
  • Following the data, USDMXN has risen back above the 17.0 level, with the move broadly in line with regional peers such as BRL and COP, driven by the shift higher in US yields. On the upside focus remains on 17.3860, the Jan 17 high, which is an important reversal trigger. On the downside, initial support lies at 16.8021, the 20-day EMA.
  • Pantheon note that the CPI report sends mixed signals, with core inflation declining rapidly, but challenges remaining, including from relatively sticky services inflation, volatile food prices and a challenging external environment, prompting a hawkish stance from Banxico. As a result, they expect policymakers to maintain the current interest rate next month. Gradual interest rate cuts may resume in June, with pauses possible, depending on the US Federal Reserve's policy.
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