Mexico H1 Jun' CPI came in above consensus and closer to a UBS estimate of 0.24%. Mexico 12 month headline CPI edged up to 4.78%, while core continue its way down, reaching 4.17%. Foods and vegetables continued to add pressure to inflation in June; on the core front, services showed brad stability while core goods bounced back from its recent weak biweekly prints. It seems to early to attribute the rise in core goods to the FX weakness seen in June.
Data is not a game changer for Banxico, which should remain on hold this week. Focus now shifts to first U.S. presidential debate this Thursday, which may pressure the MXN as markets are likely to remain sensitive to potential headlines that could signal a tougher stance towards migration or tariffs. Banxico also meets on Thursday, its first policy meeting since the Mexican elections, and UBS economists expect the central bank to deliver a cautious tone. While Banxico has mentioned that the local financial system has been able to withstand the spike in vol after the elections, I think the board is likely to signal to markets that it remains vigilant and that it will be ready to act if conditions so merit. UBS economists see upside risks for USD/MXN above 19/$ as fairly contained while the desk holds downside exposure via options.
-UBS Strategy
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