Peso walks a financial tightrope vs US dollar

Manila: The Philippine peso climbed against the US dollar for the second day in a row on Wednesday (January 28) to 58.388 vs $1, on stronger foreign investment inflows and dollar remittances.

The peso has been buoyed up in part by overseas Filipino workers (OFWs) who have injected record dollars into the country, alongside higher inflows into Philippine stocks and bonds driven by optimism about economic recovery.

Dollar inflows

Foreign investment inflows jumped $27.7 billion in 2024 (as per Department of Trade and Industry data), up 28 per cent from $21.6 billion in 2023.

In 2024, Overseas Filipino Worker (OFW) remittances increased by 3 per cent to $31.49 billion from January to October. This was a 3% increase from the $30.57 billion recorded in the same period in 2023. 

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) has been keeping a high interest-rate regime to curb inflation, adding to the demand for pesos.

Financial tightrope

On average, however, the Philippine currency has been down 4 per cent to 58.388 in January 2025 vs the January 2024 average of 55.972, according to BSP data.

Still, the Philippine peso is walking a financial tightrope, inching dangerously close to a nerve-wracking milestone.

Analysts predict it could nosedive to Php60 per US dollar by midyear — a drop not seen in ages. Big names like Goldman Sachs, Barclays, and Fitch Solutions are bracing for impact, while DBS Group takes it up a notch, warning the peso might tumble even lower to Php60.8.  

On Friday, the peso closed at Php58.31 to the dollar, before dropping to Php58.459 on Monday (January 27), before inching higher in the last two days. 

Still, this rate is uncomfortably close to the all-time low, when 1 Philippine peso was worth 0.0169 US dollar, or $1 = Php58.985, hit on December 19, 2024, as per BSP data.

Currency storm

The peso’s struggles reflect a broader storm sweeping across Asia as the region grapples with a surging dollar. 

Markets are rattled by the ripple effects of Donald Trump’s presidency, with the peso emerging as one of the hardest-hit currencies.

The BSP has stepped into the foreign exchange market, seeking to stabilise the peso’s volatility. 

Since August, the central bank has slashed rates by a total of 75 basis points, aiming to soften the blow. 

Yet, with geopolitical tensions simmering and US policy trajectories clouded in uncertainty, further rate reductions may be more measured.

A critical decision looms on February 13. Industry watchers said the peso breaching 60 pesos-per-dollar remains a very real possibility, hinging largely on the shape of Trump’s trade and fiscal policies. 

Aggressive US tariffs could roil global markets, plunging the peso further while potentially rendering BSP’s interventions in the forex market ineffective.

All eyes are now on how the geopolitical chessboard plays out — a moment that could tip the scales for the Philippines’ currency and economy.

Several factors contribute to the peso’s decline:

Persistent trade deficit:

The Philippines consistently imports more than it exports, leading to a trade deficit. To pay for these imports, there is a continuous demand for foreign currencies, particularly the US dollar, which results in the depreciation of the peso.

The Philippine Statistics Authority (PSA) reported that the Philippines incurred a trade gap of $54.21 billion in 2024, up by 3.08 per cent from $52.29 billion in 2023, though imports contracted by 1.7 percent in December 2024 to $9.79 billion.

Strong US dollar:

The strength of the US dollar has been a significant factor in the peso's weakness. As the dollar remains robust, emerging market currencies, including the peso, face depreciation pressures.
BNN

Economic uncertainties:

Anticipation of US economic data, such as inflation reports, influences investor behavior. Concerns that higher US inflation could lead to increased interest rates make investors cautious, affecting currencies like the peso.
Finimize

Underdeveloped domestic production:

The Philippines' underdeveloped agricultural and industrial sectors mean the country relies heavily on imports. This reliance makes the economy vulnerable to external shocks and contributes to the peso's depreciation.
ibon.org

These factors collectively exert downward pressure on the peso, leading to its current near-record low levels.

Philippine currency snaps short-lived run as rallying dollar overpowers most currencies

Manila: Overseas Filipino Workers (OFWs) could enjoy a virtual pay raise as the peso sank on Thursday, allowing them to get more in local currency for every dollar sent home.

This can increase household spending, potentially boosting domestic consumption.

The peso hits its record low of Php59.05:$1 on October 9, 2022.

The Philippine currency briefly appreciated in recent days, but it was a short-lived run as the rallying dollar overpowered it, drawing strength from recent market and geopolitical developments.

Data showed this was the peso’s weakest close in 26 months.

Additional BSP easing to support the economy coupled with trade jitters stand to exacerbate the downtrend. Philippines may have missed its goal of at least 6% growth last year, an official said Friday. The nation last month widened its projected growth range for 2025 to 6%-8% due to uncertainties over Trump’s trade policy.

Contributing to the currency’s weakness is a deterioration in the current account balance, equities market outflows, and a widening gap in yields with US.

The peso “remains vulnerable, but to a relatively lesser extent than many other Asian currencies,” given the Philippine economy’s domestic focus, said Audrey Ong, a strategist at Barclays. “Less robust external metrics could pose a risk to the peso.”

Dollar strengthens

The strong dollar continued to enjoy inflows amid new post-election developments in the United States.

The US Federal Reserve announced Wednesday a modest 25-basis-points policy rate cut, its third since the pandemic, but with fewer rate cuts expected in 2025.

The US dollar has regained almost all the ground it lost against a basket of global currencies, as president-elect Donald Trump has threatened sanctions on countries that would try to undercut the mighty greenback.

What a weaker peso means

A weaker currency means locally-made goods and services become cheaper for foreign buyers, which can boost demand for exports such as electronics, garments, and BPO services.

But it may also lead to inflationary pressures and increased costs for imports and debt servicing.

At the same time, the BSP might intervene in the foreign exchange market or adjust interest rates to stabilise the peso and control inflation.

The net effect, however, depends on how the government, including the BSP, and private sector manage these dynamics.