US CPI runs hot at 3.7% and the peso gives up 11 centavos to 18.48

Good morning!

The print came in hot, and the tape felt it right away. September CPI landed at +3.7% year-on-year, above the +3.6% consensus and August's +3.4%; core firmed to +2.6% versus +2.5% expected. On the month, +0.6% headline and +0.3% core.

Energy and gasoline (+5.2% and +9.1%) account for roughly half the jump, so this isn't broad reflation. But the core measure that strips that noise also beat, and that's what stings two weeks ahead of the Oct 28 FOMC.

The Fed gets the number it didn't want

A hotter-than-expected print trims the room for cuts. The 10-year is responding: back to 5.28%, +7bp, with the dollar bid against the whole EM block. The read is simple — less space for the Fed to ease in October, and the digest prices already carry that adjustment.

A domestic currency paying for a foreign number

Here's what bugs me. The peso had been flying, up +7.4% on the month and trading near 18.23 on Monday, on a rate premium squeezed to just 2.62pp. That differential didn't explain the rally; global appetite and a soft dollar did.

This morning an outside data point collects the bill. USD/MXN opens 11 centavos above the prior close at 18.4798, flirting with the rolling ceiling at 18.5460, some 7 centavos away. The peso-rates link was basically nil this month (+0.16); today they moved together.

If you're running short dollar hedges, this is the kind of overnight gap that runs you over without warning.

Where I stand: long the dollar

On Monday I drew the line at 18.00. With spot 48 centavos higher, that post sat too far off, so I'm lifting it to 18.20: I drop the dollar-buying bias only if the peso closes back below that level. Market opinion.

For the record: the Oct 7 neutral call failed — USD/MXN moved +2.84% over five sessions and matured today. I read range where the trend ran to the dollar.

The Risk On index slips from 53 to 42, in DEFENSIVE territory. Mind the apparent contradiction: VIX at 15.66 says equity calm, but the index weighs the peso's weakness and the thin carry more heavily. The 2s10s curve stays positive at 0.44pp.

The data has spoken; what matters now is whether spot holds above 18.20.

— See you tomorrow for Thursday's view.