Inside the Philippine Peso's Historic Plunge to Record Lows Against the US Dollar

Philippine Peso bills sent by a Filipino working abroad are pictured at a money remittance center in Makati City, Metro Manila, Philippines, on September 19, 2018.

The Philippine's peso is currently hovering at historic lows, driven by a combination of domestic economic pressures and international geopolitical tensions. Hitting an all-time low of 62.71 against the US dollar on Friday, the currency has faced a continuous downward trend.

Since the beginning of the year, the peso has shed approximately 6 percent of its value. This depreciation has been accelerated by rising global oil prices and headwinds resulting from the US-Israel war on Iran. After previously touching a record low of 61.847 on July 24, the currency dropped further to 62.265 last Friday before closing the week at 62.71.

The decline is primarily linked to negative domestic trends and the growing strength of the US dollar. Following the disruption of Gulf oil supplies and the effective shutdown of the Strait of Hormuz by Iran in March, Manila declared a state of national emergency. Consequently, Philippine importers must convert more pesos into US dollars to acquire crude oil, which drives down the local currency's value.

Furthermore, rising yields on US Treasury Bonds have prompted global investors to shift out of developing economy currencies and into dollar-dominated assets. Philip McNicholas, Asia sovereign strategist at Robeco Singapore, noted that the country's large fiscal and current account deficits, alongside elevated inflation tackled by the central bank, the BSP, leave the peso highly vulnerable to shifts in global risk sentiment.

While currency depreciation can aid exporters and boost tourism, rapid drops particularly harm energy-importing nations by driving up import costs and fueling inflation. In August, the Philippines' inflation rate reached 6.1 percent, significantly outpacing regional peers and doubling the central bank's target.

Ashwin Binwani, founder of Alpha Binwani Capital in Singapore, warns that the peso could drop past 63.00 if oil prices remain above $90 a barrel. President Ferdinand Marcos Jr's administration has responded by committing to enhanced fiscal discipline and anticipating necessary central bank interventions.

Despite these headwinds, the economy benefits from substantial remittances sent by over two million Filipinos working overseas, which totaled a record $35.63bn last year. Masahiko Loo, senior fixed income strategist at State Street Investment Management in Tokyo, explains that these remittances—accounting for roughly 8 to 9 percent of GDP—serve as a powerful stabilizer, though they cannot completely shield the economy from external shocks.