By Katherine K. Chan, Reporter

THE PESO may recover slightly by yearend before depreciating further to breach P64 to the dollar in the fourth quarter of 2027, making it the weakest link among Asian currencies, Singapore-based DBS Bank Ltd said.

In its foreign exchange (FX) quarterly report for the fourth quarter, DBS sees the local unit strengthening back to P61.50 against the greenback in the three months to December.

However, the Singaporean bank expects the peso to weaken anew next year to P62.10 per dollar in the first quarter and P62.80 in the second quarter.

By the third quarter, it may breach the P63-a-dollar level to average P63.40 before slumping to the P64 handle in the fourth quarter.

“PHP (Philippine peso) is likely to remain a laggard in (the fourth quarter of 2026) although its depreciation is showing signs of slowing,” DBS Senior FX Strategist Philip Wee and FX & Credit Strategist Chang Wei Liang said on Wednesday.

Based on DBS’ report, the peso has suffered the largest depreciation against the dollar among Asian currencies since the Middle East war erupted in late February, falling by 7.8% from Feb. 27 to Sept. 29.

This was steeper than the declines of the Thai baht (7.5%), Indonesian rupiah (6.7%), Indian rupee (5.3%), Malaysian ringgit (4.6%), New Taiwan dollar (2.1%), Singapore dollar (1.1%), Japanese yen (0.9%), and Hong Kong dollar (0.3%).

Meanwhile, the Korean won emerged as the strongest Asian currency since the Middle East war after gaining 6% against the dollar, followed by the Chinese yuan (2.4%) and Vietnamese dong (0.3%.)

In the third quarter alone, the peso also weakened the most after falling by 2% versus the greenback, trailing the Indian rupee (-1.4%), Thai baht (-1.1%), Indonesian rupiah (-0.5%), and New Taiwan dollar (-0.2%).

The peso hit a record-low close of P62.86 on Sept. 14 and also touched a record intraday low of P62.925 on Sept. 15.

As of end-September, the peso has slumped by P3.85 or 6.15% from its P58.79 finish on Dec. 29, 2025, according to Bankers Association of the Philippines data.

Mr. Wee and Mr. Chang noted that elevated global oil prices continue to strain the local currency, outweighing gains from remittance flows and services revenue.

“Growth in the Philippines has weakened without easing the country’s external funding needs, as expensive oil sustains the import bill,” they said. “Remittances and services earnings provide support but cannot fully offset the trade deficit.”

In the second quarter, the Philippines’ current account gap ballooned to $8.968 billion or -7.3% of gross domestic product, based on the latest Bangko Sentral ng Pilipinas (BSP) data.

This came as the country’s trade-in-goods deficit widened by 12.3% to $4.94 billion in June, inflating the first-half gap by 25.85% to $30.81 billion.

The DBS analysts also noted that the US Federal Reserve’s shift to a restrictive monetary policy stance may have tempered the supposed currency boost from the BSP’s recent rate hikes.

“(The) Bangko Sentral ng Pilipinas has raised rates, but weak consumption and investment constrain further tightening, just as a renewed Fed hike erodes the PHP’s yield advantage,” Mr. Wee and Mr. Chang said.

The BSP began its tightening cycle in April. It delivered its third consecutive 25-basis-point (bp) hike in August, which brought its policy rate to an over one-year high of 5%.

Meanwhile, after holding fire for five straight meetings, the Fed in September raised its benchmark rates for the first time in three years by 25 bps to the 3.75%-4% range.

Markets are anticipating further tightening from both central banks this year, with BSP Governor Eli M. Remolona, Jr. seeking to bring inflation closer to their 3% target and Fed Chair Kevin Warsh acknowledging the need for rate hikes as the United States continues to grapple with sticky inflation.

“Adequate reserves and policy support favor stability at weaker levels, but a sustained recovery requires cheaper oil, stronger capital inflows, and improved domestic confidence,” the DBS analysts said.

According to Mr. Wee and Mr. Chang, however, the peso’s recovery can come from a slower depreciation rather than a sharp appreciation.

“They do not need to become stronger to perform better; they merely need the pace of depreciation to slow,” they said.

The central bank has said that they usually keep their foreign exchange market intervention minimal to prevent depleting their dollar reserves, especially as the greenback has strained other currencies as well.

According to Mr. Remolona, they intervene not to defend a specific exchange rate but to smoothen out the local currency’s sharp inflationary swings.

By 2028, DBS said the peso may climb back to P63 and strengthen further to P62 in 2029 and P61 in 2030.

The Development Budget Coordination Committee (DBCC) expects the peso to hold between P60 and P62 against the greenback until 2030.

However, the DBCC is set to meet in November to review the administration’s macroeconomic targets, according to its chair, the Department of Budget and Management.