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TIIE Curve Shifts Lower Post Inflation Data, Barclays See Banxico Slowing Hikes

  • Mexico’s lower-than-expected inflation data for February is working against the Mexican peso on Thursday, with USDMXN unable to gather any momentum below yesterday’s lows. The pair has now risen from 17.90 to 18.04, even though broad dollar indices have softened. The TIIE swaps curve is enjoying a relief rally following the data with 2-year swap rates falling around 22bps.
  • Barclays have acknowledged the positive market reaction in rates, however, they believe that US rates will remain the main driver in the coming weeks. They state that a simple Taylor Rule shows that Mexican rates have the highest sensitivity to the Fed versus its EM peers. They do not see space for TIIE to decouple too much from US rates until markets receive more clarity from the US data on what the terminal rate looks like.
  • On Banxico policy, Barclays say that inflation is on track for Banxico to act as it has guided, slowing the pace of hikes at its next meeting on March 30 to 25bp, and moving closer to the end of the cycle with a last 25bp rate hike in May.

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