Official data shows the local currency has posted its strongest performance in over a year as the US dollar continued to reel from shocks triggered by former US President Donald Trump’s unpredictable trade war.
The local currency stood at ₱55.569 to the US dollar on Friday, improving from ₱55.993 the previous week (May 2), gaining 42.4 centavos in just seven days, as per BSP.
So far this May, the peso has averaged ₱55.643, the highest level seen since September 20, 2024, when it last closed at ₱55.69.
At its current level, the peso is trading stronger than the Marcos administration’s 2025 exchange rate assumption of ₱56 to ₱58 per dollar, signaling a trend that could have significant economic implications.
Dollar weakness drives peso rally
Forex traders attributed the peso’s momentum to the sharp decline in the US dollar, which is undergoing its worst start to any year since 1989.
Market uncertainty, largely driven by Trump’s renewed tariff measures against key US trading partners, has undermined investor confidence and pushed global capital away from the greenback.
Demand for peso has been up given the renewed spike in foreign direct investments.
With the dollar under pressure, emerging market currencies like the peso have found room to appreciate.
Analysts note that the peso’s strength may help mitigate imported inflation and support the Philippine government’s broader economic objectives.
Impact on Inflation and Monetary Policy
A stronger peso could serve as a buffer against inflation by reducing the cost of imported goods such as fuel and food. The Bangko Sentral ng Pilipinas (BSP) noted that inflation for April likely settled within the 1.3% to 2.1% range, based on its preliminary estimates.
If the lower bound of that range holds, April would register the lowest inflation rate in over five years, dating back to November 2019, when inflation hit just 1.2%. It would also signal a continued slowdown from March’s 1.8% inflation rate, further reinforcing the BSP’s view that inflation remains under control.
The central bank highlighted that the combination of lower prices for essential commodities and the peso’s appreciation contributed to subdued inflation in April. Should the trend continue, it may give policymakers greater flexibility to cut interest rates, providing a much-needed cushion for the domestic economy amid ongoing global trade tensions.
