If the war in the Middle East prolongs and global oil prices continue to skyrocket, the Philippine peso could breach the ₱61:$1 level in the second quarter of 2026 and even hit as low as ₱62 to ₱64 against the United States (US) dollar.
“Our base case forecasts for the US dollar-Philippine peso [pair] assume some gradual de-escalation in April but importantly if oil prices rise sharply further toward $120 to $140 per barrel we think levels [versus the US dollar] such as ₱62 to ₱64 will look achievable especially if this is coupled with a more hawkish Fed [US Federal Reserve] and/or greater degree of risk aversion impacting emerging market (EM) FX [foreign exchange],” MUFG Bank Ltd. said in its latest monthly FX outlook published last April 1.
The oil-vulnerable peso plunged to a record low of ₱60.748 last March 31.
In the near term, MUFG sees the peso weakening beyond the ₱61:$1 mark if the Middle East conflict is sustained, but the local currency would likely end the second quarter at ₱60.5 against the US dollar and appreciate to ₱60 versus the greenback in the third quarter before lingering at the ₱59.5:$1 level from the fourth quarter to the first quarter of 2027.
In its separate Asia FX outlook for the second quarter of 2026 dated April 2, MUFG said that under the base case of higher oil prices in April before easing, the Philippine peso, Malaysian ringgit, South Korean won, and Thai baht are likely to weaken further and remain volatile before recovering later in the quarter as fuel prices decline.
MUFG’s base case assumes oil prices ease after April, with the peso seen at ₱59 to ₱60:$1 at $90-per-barrel oil and ₱60 to ₱61 at $100 oil.
MUFG said every $10-per-barrel increase in oil prices is estimated to cut Philippine gross domestic product (GDP) growth by about 0.2 percentage point (ppt) and raise inflation by about 0.6 ppt.
Higher oil prices would weaken the peso by widening the external deficit and fueling inflation, with risks intensifying as oil approaches $120 per barrel, MUFG said.
According to MUFG, the Strait of Hormuz crisis poses a deeper risk to the Philippines beyond higher oil prices, raising the possibility of an energy shortage given its heavy reliance on Middle East crude and regional fuel supplies.
Such disruptions could ripple across electricity prices, fertilizer costs, food production, manufacturing, remittances, and supply chains, the Japanese lender warned.
MUFG noted that remittances from the Middle East account for a significant about 18-percent share of money sent home by overseas Filipinos (OFs), and while historically resilient, prolonged uncertainty there could eventually slow income growth and remittance inflows. The Middle East hosts about two-fifths of the millions of overseas Filipino workers (OFWs) scattered around the world.
If oil averages $100 per barrel or more, inflation could breach the government’s four-percent target, increasing the likelihood of at least one Bangko Sentral ng Pilipinas (BSP) interest rate hike to contain expectations, MUFG added.
“The BSP is caught between a rock and a hard place as the Middle East conflict comes at a time when growth is already weak,” MUFG said.
“The policy dilemma for the BSP is that higher fuel prices would lift headline inflation even as growth risks increase. If oil prices remain elevated long enough to spill into food and transport costs, the central bank may have limited choice but to keep rates higher for longer or even tighten further,” it explained.
Domestic political factors, particularly weak government infrastructure spending execution in the aftermath of the flood-control corruption scandal, could further weigh on the peso by reducing growth support, with only a partial recovery in fiscal spending expected, MUFG said.
Rice also remains a key inflation risk, as any disruption in imports or rising prices could add to inflation pressures and limit the BSP’s room to ease, it added.
MUFG Global Markets Research senior currency analyst Lloyd Chan said in a separate April 2 report that limited fiscal space is emerging as a key vulnerability for Asian currencies, as economies like the Philippines and Thailand face greater pressure from higher energy prices due to their reliance on fuel subsidies and constrained fiscal capacity.
On the positive side, strong investments, especially in infrastructure and renewable energy (RE), could help cushion growth and limit downside risks to the peso over the medium term, according to MUFG.
Singapore-based United Overseas Bank Ltd. (UOB), meanwhile, projected the peso to hit ₱61.5 against the US dollar in the second quarter, before slightly appreciating to ₱60.5 versus the greenback in the third quarter, ₱60.2 in the fourth quarter, and ₱60 in the first quarter of next year.
“Currency underperformance has been most pronounced among net energy importers—notably the Thai baht, South Korean won, Philippine peso, and Indian rupee—which remain particularly exposed to the adverse growth and inflation implications of sustained high oil prices,” UOB said in an April 2 report.
Since the war in Iran began, the peso depreciated by 5.1 percent against the US dollar, UOB data showed.
In case the Middle East conflict continues, UOB warned that across the Association of Southeast Asian Nations (ASEAN), a sustained oil shock could raise regional inflation by about one ppt for every $10-per-barrel increase and cut growth by roughly 0.7 ppt. In particular, UOB estimates showed that oil at $100 per barrel may push inflation up by two ppts while reducing growth by 1.4 ppts.
UOB said Asian currencies are expected to face near-term pressure through the second quarter due to energy supply disruptions from the Strait of Hormuz blockage, though a cautiously positive longer-term outlook hinges on a timely de-escalation of the conflict before economic spillovers worsen.
Separate Capital Economics data showed that the Philippine peso recorded one of the largest depreciations versus the greenback last March, surpassed only by the South African rand—the worst performer—and Chilean peso.
“Safe-haven demand and a US-positive terms-of-trade shock has boosted the dollar against all major currencies since the outbreak of war… If the war were to rumble on, we think there is more scope for the dollar to rally as it benefits from a further US-positive shift in the terms of trade and increased demand for safe havens,” the think tank said in an April 2 report.
https://mb.com.ph/2026/04/04/association-peso-may-slide-to-641-in-worst-case-as-oil-shock-deepens
PESO MAY SLIDE TO ₱64:$1 IN WORST CASE AS OIL SHOCK DEEPENS
If the war in the Middle East prolongs and global oil prices continue to skyrocket, the Philippine peso could breach the ₱61:$1 level in the second quarter of 2026 and even hit as low as ₱62 to ₱64 against the United States (US) dollar.
“Our base case forecasts for the US dollar-Philippine peso [pair] assume some gradual de-escalation in April but importantly if oil prices rise sharply further toward $120 to $140 per barrel we think levels [versus the US dollar] such as ₱62 to ₱64 will look achievable especially if this is coupled with a more hawkish Fed [US Federal Reserve] and/or greater degree of risk aversion impacting emerging market (EM) FX [foreign exchange],” MUFG Bank Ltd. said in its latest monthly FX outlook published last April 1.
The oil-vulnerable peso plunged to a record low of ₱60.748 last March 31.
In the near term, MUFG sees the peso weakening beyond the ₱61:$1 mark if the Middle East conflict is sustained, but the local currency would likely end the second quarter at ₱60.5 against the US dollar and appreciate to ₱60 versus the greenback in the third quarter before lingering at the ₱59.5:$1 level from the fourth quarter to the first quarter of 2027.
In its separate Asia FX outlook for the second quarter of 2026 dated April 2, MUFG said that under the base case of higher oil prices in April before easing, the Philippine peso, Malaysian ringgit, South Korean won, and Thai baht are likely to weaken further and remain volatile before recovering later in the quarter as fuel prices decline.
MUFG’s base case assumes oil prices ease after April, with the peso seen at ₱59 to ₱60:$1 at $90-per-barrel oil and ₱60 to ₱61 at $100 oil.
MUFG said every $10-per-barrel increase in oil prices is estimated to cut Philippine gross domestic product (GDP) growth by about 0.2 percentage point (ppt) and raise inflation by about 0.6 ppt.
Higher oil prices would weaken the peso by widening the external deficit and fueling inflation, with risks intensifying as oil approaches $120 per barrel, MUFG said.
According to MUFG, the Strait of Hormuz crisis poses a deeper risk to the Philippines beyond higher oil prices, raising the possibility of an energy shortage given its heavy reliance on Middle East crude and regional fuel supplies.
Such disruptions could ripple across electricity prices, fertilizer costs, food production, manufacturing, remittances, and supply chains, the Japanese lender warned.
MUFG noted that remittances from the Middle East account for a significant about 18-percent share of money sent home by overseas Filipinos (OFs), and while historically resilient, prolonged uncertainty there could eventually slow income growth and remittance inflows. The Middle East hosts about two-fifths of the millions of overseas Filipino workers (OFWs) scattered around the world.
If oil averages $100 per barrel or more, inflation could breach the government’s four-percent target, increasing the likelihood of at least one Bangko Sentral ng Pilipinas (BSP) interest rate hike to contain expectations, MUFG added.
“The BSP is caught between a rock and a hard place as the Middle East conflict comes at a time when growth is already weak,” MUFG said.
“The policy dilemma for the BSP is that higher fuel prices would lift headline inflation even as growth risks increase. If oil prices remain elevated long enough to spill into food and transport costs, the central bank may have limited choice but to keep rates higher for longer or even tighten further,” it explained.
Domestic political factors, particularly weak government infrastructure spending execution in the aftermath of the flood-control corruption scandal, could further weigh on the peso by reducing growth support, with only a partial recovery in fiscal spending expected, MUFG said.
Rice also remains a key inflation risk, as any disruption in imports or rising prices could add to inflation pressures and limit the BSP’s room to ease, it added.
MUFG Global Markets Research senior currency analyst Lloyd Chan said in a separate April 2 report that limited fiscal space is emerging as a key vulnerability for Asian currencies, as economies like the Philippines and Thailand face greater pressure from higher energy prices due to their reliance on fuel subsidies and constrained fiscal capacity.
On the positive side, strong investments, especially in infrastructure and renewable energy (RE), could help cushion growth and limit downside risks to the peso over the medium term, according to MUFG.
Singapore-based United Overseas Bank Ltd. (UOB), meanwhile, projected the peso to hit ₱61.5 against the US dollar in the second quarter, before slightly appreciating to ₱60.5 versus the greenback in the third quarter, ₱60.2 in the fourth quarter, and ₱60 in the first quarter of next year.
“Currency underperformance has been most pronounced among net energy importers—notably the Thai baht, South Korean won, Philippine peso, and Indian rupee—which remain particularly exposed to the adverse growth and inflation implications of sustained high oil prices,” UOB said in an April 2 report.
Since the war in Iran began, the peso depreciated by 5.1 percent against the US dollar, UOB data showed.
In case the Middle East conflict continues, UOB warned that across the Association of Southeast Asian Nations (ASEAN), a sustained oil shock could raise regional inflation by about one ppt for every $10-per-barrel increase and cut growth by roughly 0.7 ppt. In particular, UOB estimates showed that oil at $100 per barrel may push inflation up by two ppts while reducing growth by 1.4 ppts.
UOB said Asian currencies are expected to face near-term pressure through the second quarter due to energy supply disruptions from the Strait of Hormuz blockage, though a cautiously positive longer-term outlook hinges on a timely de-escalation of the conflict before economic spillovers worsen.
Separate Capital Economics data showed that the Philippine peso recorded one of the largest depreciations versus the greenback last March, surpassed only by the South African rand—the worst performer—and Chilean peso.
“Safe-haven demand and a US-positive terms-of-trade shock has boosted the dollar against all major currencies since the outbreak of war… If the war were to rumble on, we think there is more scope for the dollar to rally as it benefits from a further US-positive shift in the terms of trade and increased demand for safe havens,” the think tank said in an April 2 report.
https://mb.com.ph/2026/04/04/association-peso-may-slide-to-641-in-worst-case-as-oil-shock-deepens