Japanese financial giant MUFG Bank Ltd. sees the peso's appreciation streak against the United States (US) dollar being sustained until early 2026. 

"We continue to forecast the Philippine peso to strengthen against the US dollar, reflecting low inflation, continued space for rate cuts, FDI [foreign direct investment] improvement, a likely trade deal with the US, coupled with strong infrastructure spending," MUFG Global Markets Research said in its latest foreign exchange outlook report for June 2025, published on Monday, June 2.

MUFG noted that the peso's end-May spot close of ₱55.73:$1 was stronger than the prior month's ₱55.841.

As Manila Bulletin reported earlier, MUFG still expects the peso to settle at ₱55.6 versus the greenback by the end of the second quarter, before appreciating further to ₱55 in the third quarter, and to ₱54.5 in the fourth quarter until the first quarter of next year.

This MUFG projection partly "reflects global factors such as the US-China tariff pause, with our expectation now for more modest Chinese yuan weakness."

"More importantly, domestic inflation pressures in the Philippines have also been softer than expected, and this provides the BSP [Bangko Sentral ng Pilipinas] further space to cut rates to support the economy," MUFG said.

It had pulled down its 2025 headline inflation forecast to an average of 1.8 percent, below the government's targeted two- to four-percent range of manageable annual price increases, on the back of "continued declines in domestic rice prices, manageable oil prices, coupled with reduced risks to transport fare and electricity price hikes."

"As such, we continue to forecast the BSP to remain dovish and cut the policy rate by a further 75 basis points (bps), bringing it to 4.75 percent by end-2025" from the current 5.5 percent, it said.

As MUFG noted in its previous May 27 report, the Philippines would likely benefit from a possible trade pact with America to lower US President Donald Trump's initial 17-percent reciprocal tariff on Philippine imports.

But MUFG still flagged three downside risks to the peso: the 3.5-percent remittance tax on non-US nationals under the pending One Big Beautiful bill—already passed by the US Lower House—which could cut Philippine inflows by 0.1 percent of gross domestic product (GDP); slowing FDI approvals; as well as rising local political risks seen spilling over until next year.

"Our base case is for the recent Senate election results to slow the pace of reforms but we think it is unlikely to change the trajectory of policy including on infrastructure build-out," MUFG said, referring to the underperformance of the Marcos Jr. administration's Alyansa bets and the entry of more-than-expected senators aligned with Vice President Sara Duterte into the upper chamber in the upcoming 20th Congress.