Mexico’s fiscal balance in March recorded a deficit of 110.1 billion pesos. This was a larger deficit than the previous figure of 50.733 billion pesos.
The balance moved further into negative territory by 59.367 billion pesos compared with the prior reading. The data refers to Mexico’s fiscal position for March.
Given the sharp widening of Mexico’s fiscal deficit to -110.1B pesos, we are seeing immediate and significant pressure on the currency. The USD/MXN exchange rate has already jumped past 17.90, reflecting concern over the government’s fiscal discipline. This is a clear signal that the market is pricing in higher risk for Mexican assets.
The most direct strategy is to position for further peso weakness in the coming weeks. We should be looking at buying USD/MXN call options or selling peso futures. Implied volatility is rising, so acting sooner is better; recent data shows options market activity now projects a 65% chance the pair will touch 18.20 by the end of May.
This fiscal deterioration will likely force Banxico’s hand, making future interest rate cuts less likely and potential hikes a real possibility to defend the currency. April’s inflation report already showed a stubborn uptick to 4.8%, giving the central bank reason to be hawkish. Therefore, we should consider using derivatives tied to the TIIE interbank rate to bet on higher rates over the next three to six months.
Looking back from our perspective in 2025, we saw a similar, though less severe, peso sell-off during the post-election uncertainty in mid-2024. During that period, the peso weakened nearly 8% in a matter of weeks on fiscal concerns before authorities stepped in to reassure markets. That historical precedent shows how quickly sentiment can turn and how long it can take to recover.
The increased risk is also visible in the credit markets, where Mexico’s 5-year credit default swaps (CDS) have widened by over 15 basis points. This negative sentiment will likely weigh on the Mexican stock market, the IPC index. Buying put options on a broad market ETF like the iShares MSCI Mexico ETF (EWW) offers a way to hedge against or profit from a potential downturn.
