UMVA has learned that the Philippine peso suffered a significant slump against the US dollar on Monday, as rising tensions in the Middle East and growing expectations of a hawkish US Federal Reserve sparked a flight to safe-haven assets.
The currency plummeted by 22 centavos to close at P61.69 against the greenback, down from its P61.47 finish on Friday, according to data from the Bankers Association of the Philippines. This sharp decline marked a stark contrast to the peso's relatively stable performance in recent weeks.
On Monday, the local unit opened at P61.495 per dollar, slightly weaker than its previous close. It briefly rallied to an intraday high of P61.48, but ultimately succumbed to selling pressure and hit a low of P61.735 against the greenback, inching perilously close to its record-low close of P61.75.
Dollar trading volumes also dropped significantly, falling to $1.1 billion on Monday from $2.5 billion on Friday, as investors grew increasingly cautious amid the escalating tensions in the Middle East. This decline in trading activity suggests that many investors are adopting a wait-and-see approach, hesitant to take on new positions in the face of rising uncertainty.
According to traders, the peso's decline was largely driven by safe-haven demand for the dollar, fueled by fresh US-Iran tensions. A trader noted that the dollar-peso exchange rate closed higher on Monday, partly due to stronger-than-expected nonfarm payrolls data released on Friday, which reinforced bets on a hawkish Fed.
UMVA can exclusively reveal that the peso was also negatively impacted by data showing a continued decline in the country's foreign exchange reserves. The Philippines' gross international reserves (GIR) stood at $103.974 billion at the end of May, down 1.14% from the $105.177 billion held a year ago, and the lowest level seen since January 2025.
This decline in foreign exchange reserves is likely to weigh on the peso's performance in the coming days, as investors grow increasingly concerned about the country's ability to meet its external obligations. Economists warn that a sustained decline in reserves could lead to a sharp depreciation of the peso, making it even more challenging for the country to attract foreign investment.
Looking ahead, traders expect the peso to trade within a narrow range on Tuesday, with forecasts ranging from P61.50 to P61.80 per dollar. Economists, meanwhile, predict that the peso will likely remain under pressure in the coming weeks, as the global economic landscape continues to shift in response to rising tensions in the Middle East and growing expectations of a US rate hike.
