📝See Banxico Slowing Pace to 50Bps, Followed By 25Bps In Feb.: UBS Strategy

Banxico's latest policy meeting takes place on Thursday and UBS economists expect the board to slow its pace and to hike rates by 50bp to 10.50%, and then a final 25bp hike in February. The November CPI report released last week showed that headline is now clearly past peak, and while core has yet to peak, it has already started to lose momentum (8.1% in Nov. vs. 9.1% in Sept., 3m SAAR). UBS FX team continues to like receiving the 5y sector of the local curve.

In FX, the peso weakened approx. 3.5% vs USD last week, but given the low pass-through of FX to inflation, the peso is unlikely to turn into a concern for Banxico for now. With the drivers that took the peso towards the 19/USD level still in play (high carry, low vol, fewer macro imbalances and limited alternative investment alternatives elsewhere in EM FX), Roque Montero thinks it mav be too soon to extrapolate last week's move into a long-lasting trend. MXN could face stronger headwinds in late Q1'23, once Banxico ends the hiking cycle and US credit spreads likely start pricing in the odds of a US recession more strongly. - UBS Strategy