With the Philippine peso dropping nearly five percent against the United States (US) dollar since January, Singapore-based United Overseas Bank Ltd. (UOB) forecasts that the local currency could tumble to a fresh record low of ₱63 per greenback over the next quarter.

UOB said in its latest quarterly forecast, released early this month, that the peso could fall sharply to ₱63:$1 in the third quarter as the local economy bears the pressure of being highly reliant on imported oil and fuel, which has been sensitive to the unpredictable actions of the US and Iran during their protracted conflict over the past four months.

UOB said it expects the peso to remain “weak” in the third quarter of 2026 “before gradually stabilizing and rebounding in line with broader Asia foreign exchange (forex) strengthening from the fourth quarter onwards.”

Based on its latest projections, the US dollar-peso pair is seen trading at ₱63:$1 in the quarter ahead, ₱62.5:$1 in the fourth quarter, ₱62:$1 in the first quarter of 2027, and ₱61.5:$1 in the second quarter.

The peso plunged to a historic low of ₱61.75:$1 last May 18, driven by strong demand for the safe-haven US dollar and a local market that had become more sensitive to uncertainty.

These currency swings signal a broader economic slowdown. Domestic economic growth has fallen off track as gross domestic product (GDP) sharply moderated to a five-year low of 2.8 percent in the first quarter of 2026. This marked the third consecutive slowdown since the second half of 2025, when the multibillion-peso flood-control infrastructure corruption scandal erupted.

This deceleration is the result of both domestic and external headwinds, prompting UOB to slash its full-year economic outlook. “We have lowered our 2026 GDP growth forecast to 3.2 percent, from five percent, the slowest since the pandemic,” it said.

UOB’s projection was published before Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan disclosed the potential downward revision of this year’s GDP growth target, with the economic team now seeing the economy expanding by 3.5 to 4.5 percent, significantly below the existing goal of five to six percent.

A major contributor to this economic anxiety is the Philippines’ vulnerability to global energy shocks. The country relies on imports for more than 90 percent of its oil requirements, causing fuel prices to spike whenever tensions threaten shipping through the Strait of Hormuz.

Global inflation has already seeped into consumer prices, with headline inflation surging to a more-than-three-year high of 7.2 percent in April before easing to 6.8 percent in May, although it remained above the target ceiling of four percent.

Consequently, UOB has raised its full-year headline inflation forecast to 7.5 percent from 5.5 percent. If realized, 2026 inflation would mark the highest annual price growth since the 8.2 percent in 2008 during the global financial crisis (GFC).

To address supply-driven price pressures, the Bangko Sentral ng Pilipinas (BSP) tightened monetary policy by raising rates by 25 basis points (bps) in April and another 25 bps in June.

UOB had previously expected that weak economic growth would limit the scope for hawkish or off-cycle interest rate hikes in June. While remaining hawkish, the BSP appeared to take a more measured approach, delivering only a quarter-point increase.

Meanwhile, UOB still anticipates further tightening to five percent by the third quarter, “where it is likely to remain through end-2026.”

“Policymakers are expected to adopt a calibrated, data-dependent approach, balancing inflation risks against softening growth, with greater reliance on targeted fiscal measures alongside gradual monetary tightening amid rising stagflation risks,” UOB said.

Additionally, environmental and domestic political developments pose further risks to the outlook.

UOB said a high probability of El Niño emerging between June and the third quarter threatens to push food prices higher by weighing on agricultural output.

At the same time, the country is navigating a tense political landscape. “Emerging political risks also present another source of uncertainty, with the impeachment proceedings involving Vice President Sara Duterte potentially influencing investor sentiment, fiscal policy continuity, and peso stability,” UOB said.