The Philippine peso and the Thai baht are leading the retreat in Asian currencies as escalating military hostilities between United State-Israel and Iran drive investors toward the safety of the dollar, according to MUFG Bank Ltd.

According to the data monitored by rhe Japanese financial giant, the peso has tumbled four percent against the greenback since the onset of the conflict in late February. That depreciation ranks the Philippine currency among the region’s worst performers, trailing only the Thai baht’s 4.9 percent slide and slightly exceeding the 3.9 percent decline in the South Korean won.

The peso sank to a record low of 60.1 per dollar on March 19, the final trading day of the week, bringing its total loss for March to 4.2 percent.

Jonathan Ravelas, a senior adviser at Reyes Tacandong & Co., said the historic slump was a direct reaction to Iran’s retaliation against Israel.

He warned that the local currency faces a prolonged recovery if external shocks, particularly surging energy costs, continue to rattle global markets.

The exchange rate could remain entrenched above the 60 level if the conflict escalates further, Ravelas said.

The currency volatility is narrowing the path for the Bangko Sentral ng Pilipinas to continue its easing cycle. Because of the high weighting of food in consumer price indexes ib the Philippines, Thailand, and Indonesia, these economies remain particularly vulnerable to inflation-driven policy constraints, MUFG analysts wrote in a March 20 commentary.

Regional currencies are buckling under the pressure of rising oil prices due to heavy reliance on Middle Eastern energy supplies. While the peso and Indian rupee have touched fresh lows, the Korean won is trading near levels not seen since the 2008 global financial crisis.

The BSP lowered its key policy rate to 4.25 percent in February to bolster an economy that grew by just 4.4 percent in 2025, missing the government’s minimum target of 5.5 percent.

Following that move, BSP Governor Eli M. Remolona Jr. expressed concern regarding the diminishing power of monetary policy to stimulate growth.

Remolona suggested that the burden of economic revival now rests on fiscal reforms and addressing governance failures, particularly following recent controversies surrounding flood control funding.

The central bank had earlier signaled an end to its easing cycle, which began in August 2024 and has seen rates cut by a total of 225 basis points. However, MUFG noted that the BSP may be forced to pivot back to tightening if oil prices climb sustainably above $100 a barrel.

On the fiscal side, the Philippines is seeing a sharp rise in borrowing costs. The spread on two-year bonds increased 18 basis points to 263 basis points, while the 10-year spread rose 27 basis points to 218 basis points, according to MUFG. This surge in yields forced the government to scale back a recent debt auction, awarding less than half of its 20 billion peso offer as investor appetite waned amid the geopolitical turmoil.