USDMXN was higher along with broader USD on Tuesday session, but EURMXN was slightly lower on the day. This is in line with our view that investors chasing carry will sell rallies in EURMXN, and MXN will therefore outperform its peers. In forwards, funding stable, but the CPI print pushed the entire curve higher. We still see basis somewhat low in the front of the curve, but implied vols are higher overall without wide basis from 6m through 12m. Think staying paid the front end of curve makes sense as things may widen once IMM rollover period is behind us. Think the terminal rate is now near its peak given what we know now. Perhaps further upside inflation surprises can alter my view, but I think more likely that suffering growth may cause Banxico to disappoint relative to what market is currently pricing. - UBS Strategy
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