The ECB hikes 25bp as oil hits 100, and the peso gives up 7 centavos to 16.98

Good morning!

Frankfurt tightens over oil

The ECB raised its three key rates by 25bp overnight, leaving the deposit rate at 2.50%, effective September 16. What stands out is not the move itself but the reason given: inflation pressure stemming from the Middle East conflict.

A G10 central bank tightening because of crude prices is the picture of the day, and the tone surprised me. Staff revised 2026 inflation up to 3.0% and even lifted growth to 0.9%. Lagarde is still speaking as I write this.

A 100-dollar barrel reshuffles the board

WTI jumps +4.74% to 100.60 and Brent touched 100 for the first time since July after strikes on Iranian tankers and Saudi facilities. With the barrel there, the geopolitical premium bleeds into every risk asset.

The US 10-year stretches to 4.89%, and that is the channel squeezing the currency: the 20-day correlation between the peso and that yield sits at +0.38, so a higher rate drags the peso weaker. Overnight both pushed the same way.

In Mexico, August inflation ticked back up to 3.26% after four months of declines, but not enough to force Banxico's hand. On the screen: the pair opens at 16.9752, up 7 centavos from yesterday's close, flirting with 17.04.

Turning pro-dollar

Yesterday I held the pro-peso lean with the line at 17.04 and a CPI hot enough to move Banxico. The pair never reached that ceiling and inflation rose without forcing anyone's hand, so neither of my two triggers fired. I'm shifting to pro-dollar anyway, because oil at 100 and a 4.89% 10-year changed the mechanism driving the pair, ceiling touched or not.

I say it plainly because flipping from peso to dollar in a single session demands a reason. And one number bothers me here: Chicago specs are still net long the peso by 93,247 contracts as of September 1, adding another 10,865 on the week, and that positioning cuts against me.

I drop this lean if the pair reclaims the 16.85 floor or if crude gives back the gain and the US yield slides below 4.80%. Read it as a market call.

A cooling gauge

The Risk On score falls from 57 to 44 (DEFENSIVE): oil, the higher 10-year and a red S&P outweigh the 2.87pp premium Mexican rates still pay. With the VIX at 17.50 we stay in caution mode, guard a notch higher than yesterday.

US CPI lands tomorrow and the Fed decides Tuesday the 16th. If the inflation print confirms the oil scare, the peso faces another session grinding uphill.

— See you tomorrow for Friday's view.