The Philippine peso is seen likely maintaining its relative strength against the United States (US) dollar for the rest of this year until early next year, as the greenback struggles amid US economic policy uncertainty, according to Japanese financial giant MUFG Bank Ltd.

"We maintain our view for the Philippine peso to outperform Asian foreign exchange (FX)," MUFG Research said in its latest monthly foreign exchange outlook for May 2025, published last week.

MUFG noted that as of end-April, the peso had strengthened to a spot close of ₱55.841:$1 on April 30, from ₱57.24 at the start of last month.

As such, the bank lowered its USD/PHP forecast to ₱55:$1 (trading within a range of ₱53 to ₱58) by year-end, and ₱54.5 (a range of ₱52.5 to ₱57.5) by the first quarter of 2026.

It expects the peso to end the second quarter at the ₱56.3:$1 level (a range of ₱54.3 to ₱59.3), before strengthening to ₱55.6 (a range of ₱53.6 to ₱58.6) by the end of the third quarter.

Previously, MUFG's projection was a peso depreciating to ₱58.8:$1 in the second quarter, before gradually appreciating to ₱58.5 in the third quarter, ₱58.2 in the fourth quarter, and ₱58 in the first quarter of next year.

"One important factor driving this forecast change is our global team's view for a deeper US dollar downcycle, with a further five-percent DXY weakness from current levels," MUFG explained, referring to the US dollar index, which tracks the greenback's strength against a basket of major global currencies.

"In addition, for the Philippines, we have been expecting less scrutiny from the Trump 2.0 administration on tariffs, and this has played out to some extent in April with the Philippines receiving lower reciprocal tariffs relative to other Asian countries at least as initially announced," MUFG added, referring to the 17-percent tariffs, which US President Donald Trump nonetheless postponed for three months following his so-called "Liberation Day" announcement last April 2.

MUFG also pointed to three "positive" Philippine economic developments supportive of the peso.

"For one, inflation is likely to remain manageable through our forecast horizon and within the central bank's inflation target, with high frequency rice prices continuing to come off and oil prices expected to remain low," it said.

MUFG expects headline inflation to further ease to an average of 2.7 percent in 2025 from 3.2 percent in 2024—within the targeted two- to four-percent annual consumer price increases deemed conducive to economic growth.

"Second, the surge in FDI [foreign direct investment] approvals, especially in the renewables sector, should help to fund the country's current account deficit in 2025," it added, referring to the gap in net dollar earnings from foreign goods and services trade.

MUFG forecasts the current account deficit inching up to 3.9 percent of gross domestic product (GDP) this year from 3.8 percent last year.

"Third, we expect some improvement in domestic growth prospects, helped by a strong public infrastructure pipeline, the lagged impact of lower inflation, further BSP [Bangko Sentral ng Pilipinas] rate cuts, and also some near-term support from election-related spending," MUFG said.

The bank sees Philippine GDP growth of 6.3 percent for this year—within the government's more ambitious six- to eight-percent goal and faster than last year's below-expectations 5.7-percent expansion.

This would allow the BSP to cut key interest rates by 75 basis points (bps) more for the rest of the year and lower the policy rate to 4.75 percent by year-end from the current 5.5 percent, "with a stronger Philippine peso and manageable inflation helping," the bank said.

However, MUFG cautioned that "what is less positive for the Philippine peso is a relatively large current account deficit of 3.9 percent of GDP in 2025 (about $19 billion), driven both by our expectation for capital goods imports to pick up, coupled with some weakness in goods exports as global growth slows down."