Last week Banxico increased the Fondeo rate 25bp as a pre-emptive hike to protect the MXN. With inflation running at historical lows and no demand pressures on sight, Banxico is expected to deliver two more pre-emptive hikes but not to follow the Fed one-to-one thereafter. 

"We still believe the TIIE curve is pricing in too much, and we like receiving TIIE while paying Fed funds for 2016. Price action for the peso into year-end will likely be driven by oil prices and overall sentiment towards emerging markets", says Barclays.

In terms of data, this week will bring retail sales on Monday. The forecast is consistent with a 0.4% m/m sa increase as the ANTAD same store sales rose 1.9% m/m sa in real terms, partially offset by a decline of 0.3% m/m sa in car sales during October. 

On Wednesday, the economic activity index should show a flat performance on a seasonally adjusted monthly basis (0.0%) due to the 0.2% m/m sa expansion observed in formal employment and a 1.6% growth in imports partially offset by the 0.1% decline in industrial activities. Finally, the unemployment rate will be released on December 24.