Banxico will get January inflation data today – and is likely to continue its rate hikes. Economists at Commerzbank analyze how could these events impact the Peso.

Banxico could surprise with a big rate step 

“A small rise in inflation rates is likely to fuel market expectations that Banxico will deliver a small rate step and sounds hawkish, i.e. will leave the door open for further rate hikes. If, however, Banxico delivers less this is likely to cause disappointment and put pressure on the MXN.”

“A significant upside surprise regarding the inflation data might fuel expectations of a larger Banxico rate step with some, which is likely to benefit the Peso. It cannot be excluded that Banxico surprises with a big rate step which is likely to support the MXN.”

“The combination of a moderate rise in inflation, a small step and a hawkish sounding statement in which Banxico signals further interest rate steps seems more likely to us. Since much seems to be priced in already, potential Peso gains should be limited.”