The Philippine peso is under pressure to fall further against the United States (US) dollar in 2026 as the country’s ongoing economic growth headwinds continue to weigh on foreign exchange (forex) performance, London-based think tank Oxford Economics warned.

In a report released Friday, Jan. 9, Oxford Economics head of Asia economics Louise Loo said the drag stems from weak investment, uncertainty surrounding external trade policies, and governance-related disruptions that are weighing on overall economic momentum. The think tank was referring to the flood-control corruption scandal that weakened gross domestic product (GDP) growth to a 4.5-year low of four percent in the third quarter of 2025. 

Oxford Economics said these factors “continue to weigh on forex performance, extending the weakness observed last year.”

A chart showed Oxford Economics’ estimate that despite only about a one-percent depreciation versus the US dollar in the forex spot market last year, the peso slid by a faster five percent in broad effective exchange rate terms, which measure the currency’s overall performance against a basket of trading partners’ currencies and are weighted by trade shares.

This indicates that while the peso was relatively stable against the dollar, it weakened more significantly against other major currencies, reflecting broader external competitiveness pressures.

The Philippines was the third-worst performer among Asia-Pacific currencies in 2025, only behind the even weaker Indian rupee and Indonesian rupiah in both spot and broad effective exchange rate terms, Oxford Economics data showed.

The think tank highlighted that the Philippines, along with other current-account deficit economies like India and Indonesia, could remain vulnerable as a strong US dollar continues to weigh and domestic growth prospects appear less compelling.

Based on updated 2025-2026 balance of payments (BOP) forecasts released by the Bangko Sentral ng Pilipinas (BSP) in late December, the current account deficit in 2025 was seen easing to 3.2 percent of GDP, marginally narrower than the central bank’s previous projection of 3.3 percent.

For 2026, the current account deficit—the gap in the country’s net dollar earnings from trade in goods and services and income from overseas Filipino workers (OFWs)—is seen further narrowing to three percent of GDP, although wider than the earlier forecast of 2.9 percent.

As of end-September 2025, the current account deficit stood at 3.6 percent of GDP, narrower than the full-year shortfall equivalent to four percent of domestic output in 2024.

Last Wednesday, Jan. 7, the peso slumped to a fresh record low, closing at ₱59.355 against the US dollar, as escalating geopolitical tensions sparked a sell-off in emerging-market (EM) assets.

The decline follows a military strike by the US against Venezuela, an event that has rattled global markets and fueled expectations that the local currency could weaken to ₱61 per greenback by the end of this year.

Market analysts described the move as a flight to safety. Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., characterized the sharp depreciation as a “knee-jerk, risk-off reaction” to US military action.

Ravelas projects forex will cross the ₱60:$1 threshold within the year and eventually reach ₱61 by the end of 2026, driven by geopolitical “noise” and potential shifts in global trade tariffs.

Michael Ricafort, chief economist at Yuchengco-led Rizal Commercial Banking Corp. (RCBC), echoed the sentiment that the US-Venezuela conflict is the primary catalyst for the current pressure.

Ricafort suggested that the peso’s ability to avoid the ₱60:$1 mark in the short term will depend heavily on whether the BSP chooses to intervene in the forex market to smooth out volatility.