Pressure to recovery: Mapping the Philippine peso outlook

What follows the Philippine peso’s all-time low against the US dollar? 

Global financial market volatility and domestic challenges may continue to pressure the peso. However, anticipated conflict de-escalation in the Middle East and domestic economic improvement may turn the tide toward a moderate peso recovery by end-2027. 

Current market sentiment favors the US dollar, cementing its status as a safe-haven asset. This is underpinned by elevated inflation and expectations of aggressive Federal Reserve (Fed) rate increases.

Domestically, dollar outflows in part due to rising import bills and sluggish foreign direct investment inflows pressure the peso, helping push the USD/PHP to a record level. Given the persistent external and internal pressure, Metrobank expects peso weakness through the rest of 2026. 

A shift may happen in 2027, possibly driven by a weakening US dollar and stabilizing global conditions.

• Conflict de-escalation: While the situation in the Middle East broadens, the base case assumes that the US and Iran will continue negotiations, as more parties get involved amid threats to critical oil trade chokepoints. A formal deal is anticipated by 2027, which may stabilize energy markets and bring Brent Crude back to pre-conflict levels.
• Dovish Fed: Driven by elevated energy costs pushing headline US inflation above 2%, market players price in at least a 25-basis-point (bp) rate hike by the Fed for the rest of 2026. As geopolitical tensions ease in 2027, the Fed is expected to pivot to a more dovish stance. This may become a catalyst for a weaker US dollar. 

While the peso may regain ground next year, structural factors and monetary policy adjustments may prevent it from breaking below the 60 per USD threshold by end-2027.

• Economic recovery: As a net importer, the Philippines is hit hard by high commodity and oil prices in 2026. Elevated inflation and interest rates strain household budgets, possibly forcing consumers to deplete savings to cover essentials. A more stable geopolitical environment in 2027 may reverse this trend and ease domestic burdens.
• Recovering foreign flows: Foreign equities investors are net sellers of USD 171.77 million worth of stocks year-to-date as of July 29, according to the Philippine Stock Exchange. The onset of economic recovery in 2027 is expected to trigger risk-on sentiment, driving capital flows back to emerging markets like the Philippines.
   

Despite the expected 2027 recovery, economic growth may remain challenging, resulting in a gradual rather than aggressive peso appreciation. Furthermore, potential rate cuts by the Bangko Sentral ng Pilipinas (BSP) in 2027 may make local financial assets comparatively less attractive to global investors. These may cap the peso's gains and keep the exchange rate above 60 per USD. 

SOPHIA THERESE “PIA” BONIFACIO is a Research Officer at Metrobank, covering local and offshore macroeconomic research. She obtained her Bachelor’s degree in Economics with a Specialization in Financial Economics, cum laude, from the Ateneo de Manila University and is a Certified UITF Sales Person (CUSP). Pia enjoys long road trips and loves a good cup of hojicha latte.