Japanese financial giant MUFG Bank Ltd. expects the peso to remain on a depreciating trend against the United States dollar, extending a streak of underperformance fueled by domestic government spending squeeze and fiscal uncertainty.

In a research note published on Friday, Jan. 10, MUFG Bank noted that while a broad strengthening of the dollar has pressured most emerging market peers, the peso and the Indonesian rupiah have been uniquely hampered by internal fiscal tightening.

The local currency started 2026 with significant volatility, hitting a record low of ₱59.355 per dollar on Wednesday last week as geopolitical tensions between the US and Venezuela triggered a wider sell-off in risk assets.

MUFG analysts, however, pointed to the sharp slowdown in the Marcos administration’s public spending as a primary differentiator for the peso’s weakness.

The bank noted that the dollar-peso pair touched an intraday all-time high of 59.375 last week, with the currency reeling from a slump in government disbursements linked to ongoing corruption investigations into flood control projects.

While other regional currencies are trading on global sentiment, the peso is increasingly sensitive to the domestic policy environment.

The slowdown in fiscal momentum follows a period of heightened scrutiny over infrastructure allocations. According to Department of Budget and Management data, infrastructure spending plunged 40.1 percent to ₱65.9 billion in October from ₱110 billion in the same month of the previous year.

These delays in project payments, stemming from intensified probes into graft, are expected to weigh on the economic outlook through the early part of the year.

The Bangko Sentral ng Pilipinas (BSP) has already signaled it is unlikely to engage in aggressive market intervention. Despite the peso reaching uncharted territory, central bank officials have maintained that current economic fundamentals do not necessitate a defense of specific currency levels.

Citing these headwinds and recent shifts in agricultural policy—including the lifting of a three-month ban on rice imports—MUFG lowered its peso outlook.

The bank now projects the currency to trade at 58.90 per dollar by the end of the first quarter and weaken further to 59.50 by the fourth quarter of 2026.

Some market observers also anticipate even steeper declines. Jonathan Ravelas, a senior adviser at Reyes Tacandong & Co., expects the pair to breach the ₱60 psychological threshold within the year and potentially reach ₱61 by year-end, driven by global trade tariff concerns and geopolitical noise.

In contrast, Singapore’s United Overseas Bank and Nomura Holdings Inc. remain more optimistic, forecasting the peso to recover to 58 and 57 per dollar, respectively, by the end of 2026.