Data released on Tuesday showed that Mexico's CPI print for January came in at 2.61% y/y, slightly above expectations of 2.52%. The peso however was unable to benefit from the data and continued to trade at record lows against the EUR and USD. Peso valuations are highly correlated with the oil price and sustained peso appreciation will be difficult in the short term.

One upside data surprise is not sufficient to push Banxico into hiking mode. The central bank has said previously that it wanted to hike more or less in line with the Fed. Now that the markets don't price in a single rate hike from the Fed anymore, it is unlikely that we see immediate policy response from Banxico to higher CPI prints over the coming months.

"There is no immediate reason to jump into long peso positions apart from cheap valuations." said Commerzbank in a research note.