With no changes to the convergence of inflation back to the 3% target and Banxico opening the door for a March rate cut, we keep our call for consecutive rate cuts starting next month and our overnight rate year-end forecast at 9.25% (vs. 9.65% expected by market).

The attractive carry of the MXN has been the main driver of its resilience since the start of the year. Nevertheless, a sooner-than-anticipated decoupling from the Fed, and increasing odds of a faster pace of rate cuts by Banxico, point to a rapid dissipation of the MXN’s carry. This underscores the potential for sharp USD/MXN moves higher amid already large net long MXN positions by non-commercial players (speculative). 

We maintain our Q1 and Q2 USD/MXN forecasts at 18.00 and 18.50 respectively.