THE peso is expected to remain under pressure in the coming months and could hit fresh lows amid a resumption of hostilities in the Middle East, a Fitch Group unit said.
In its latest currency forecast, BMI said the peso could trade between P61 and P63 to the dollar before ending the year slightly stronger at P61:$1.
“A renewed escalation in the US-Iran conflict, US dollar firmness and seasonal peak in import demand will weigh on the peso in the near term,” it said.
“That said, we expect the peso to strengthen slightly to P61.00/USD by end-2026 as global oil prices ease and remittance inflows strengthen.”
The peso, which hit a record low of P61.75 to the dollar in May amid global and domestic uncertainties, closed at P61.587:$1 on Friday, up 3.3 centavos from a day earlier.
The BMI report, which was issued on Thursday, said the peso was currently trading at around P61.61:$1 since the Middle East war reignited. It remains among the worst-performing currencies in Asia since the start of the US-Iran war in late February, it also said.
Rising global energy prices have worsened the Philippines’ external position, which has put pressure on the peso. The country is heavily reliant on imported oil, which has made it particularly vulnerable to the fallout from the Middle East war.
“Renewed gains in global energy prices will further weigh on the peso by pushing up the import bill and widening the trade deficit,” BMI said, noting that import growth between March and May had surged to 22.1 percent from 7.9 percent in January-February.
Seasonal factors were also described as “unfavorable” as import demand usually peaks in the third quarter, indicating possible worsening in external pressures in the upcoming months.
There is also little relief from weak foreign direct investment (FDI) inflows, which declined by 17 percent during the first quarter, continuing a slump that started during the last three months of 2024.
Heightened geopolitical tensions and uncertainty on global trade policy will likely continue to affect investor sentiment and discourage investment inflows, limiting possible gains for the peso.
Peso weakness will also be reinforced by a strong dollar, and BMI noted that financial markets were continuing to price in a 25-basis-point US Federal Reserve (Fed) rate hike by year’s end.
“This should keep the USD relatively well-supported, limiting the scope for a sustained peso recovery over the coming months,” BMI noted.
Still, it expects a mild recovery for the peso toward the end of 2026 as remittance inflows usually strengthen ahead of the Christmas season. A possible drop in Brent prices could also help lower the import bill and narrow external balances.
“The peso is therefore likely to move toward the stronger end of our P61.00-63.00/USD forecast band by year-end,” BMI said.
The forecast, however, is weaker than the previous forecast of P59.50 to the dollar.
The currency will likely average P60.80 against the dollar this year, slightly lower than earlier P59.60:$1 projection.
BMI expects the peso’s weakness to extend to next year, revising its 2027 forecast at P60.00:$1 from P58.50.
“Few drivers point to a sustained peso appreciation: FDI inflows will probably remain subdued given persistent geopolitical uncertainty, while higher effective US tariff rates on goods from the Philippines will likely weigh on export growth,” it explained.
BMI said that risks remained tilted toward a weaker peso compared to its baseline forecast. It noted that a prolonged or more severe escalation of the US-Iran conflict could cause a sustained spike in Brent oil prices toward or above $84 per barrel, further widening the trade deficit and placing additional pressure on the peso.
There are also further risks from US tariff policy developments. Broad or punitive US measures, such as the July 24 transition from Section 122 to Section 301 tariffs, could dampen capital flows, regional trade and the peso.
If US inflation triggers Fed hikes, meanwhile, the Bangko Sentral ng Pilipinas may be forced to hike policy rates by 50 basis points — rather than 25 basis points — to 5.25 percent to maintain the rate differential and shield the peso.
