US CPI lands at 3.4% and defuses the hike scare; peso grazes 17.02, score 62

Good morning!

July CPI lands in line and buries the hike fear

The number that ran the week is now on the table: +0.1% m/m and +3.4% y/y, a second month of cooling from June's 3.5%. Core eases to 2.5% y/y, with shelter still the component refusing to break.

The prior debate wasn't trivial: with crude up ~21% in July, some were positioning for the Fed to hike in September. A core print above 0.30% m/m would have revived that bet. It didn't come.

The base case snaps back to the familiar: Fed on pause on Sept 15-16. The scare is off the table.

The peso grazes 17.02, ground unseen since 2024

Spot trades at 17.0214, just 2 centavos from its 10-day support (17.0058) — the peso's best level since May 2024. Yesterday we flagged it flirting with the door of its floor; today it's knocking on it.

The Banxico–Fed rate premium at 2.87pp keeps paying to stay in pesos, and positioning backs it up: Chicago specs hold 76,543 net long contracts on the peso (Aug 4 COT), adding on the week.

EM carry withstood even the yen intervention. Mexico's currency sits among the year's winners.

The 10Y eases to 4.66% and the curve keeps its slope

The 10-year Treasury yield slips -0.56% to 4.66%, a logical response to a print that doesn't force the Fed's hand. The 2s10s slope stays positive at 0.47pp.

Bond vol isn't fully asleep: the MOVE climbs 2.72 points to 77.92, a sign the rates market hasn't dropped its guard. And note: peso and 10Y are decoupled this month (-0.08), so today the rate differential matters more than the long bond.

Toward September: pause as base, gold guarding the flanks

Gold jumps +2.35% to 4,486: haven demand won't quit despite the benign data, with crude and Iran geopolitics as backdrop. It's the signal to watch if it contradicts the risk-on hinted at in ES futures (+0.46%).

My take: the bias favors the peso as long as the differential holds at these levels and the 10Y doesn't sustain above 4.80%. The statistical base barely beats a coin flip, but the in-line CPI and positioning reinforce it. If yields break 4.80% and the pair climbs back above 17.30, I turn neutral.

Risk On rises from 58 to 62/100, CONSTRUCTIVE: contained vol, a firm peso and attractive carry do the pushing; surging gold is the lone counterweight discounting the note.

— See you tomorrow for Thursday's view.