Foreign investment pouring in + US dollar weakening, Philippine peso welcomes the best annual start in 14 years

Thanks to the continuous influx of foreign capital into the stock market and the overall weakness of the US dollar, the Philippine Peso is experiencing its strongest start to a year since 2012. So far this year, the Philippine Peso has appreciated by nearly 2%, marking its largest gain since early 2012, and the momentum from its historic low point in January is gradually strengthening. After experiencing 8 years of net outflows, foreign capital has been flowing into the Philippine local stock market for two consecutive months. Against a backdrop of growing bearish sentiment towards the US dollar, Asian currencies are generally strengthening this year. For the Philippines, the stock market rebound is attracting continuous inflow of foreign capital, with the benchmark stock index approaching bull market territory. However, the strong performance of the Peso also comes with warning signals. Some analysts believe that as expectations for interest rate cuts increase towards the end of the year, the upward trend of the Peso may fade. The agency BMI under Fitch Solutions predicts that by the end of 2026, the exchange rate of the Peso against the USD will fall by over 3% from last Friday's level to 59.50 Pesos per USD. Brandon Ong, Country Risk Analyst at BMI in Singapore, said, "The recent strength of the Philippine Peso is more due to the weakness of the US dollar rather than a sudden improvement in the country's fundamentals." BMI forecasts that the Philippine central bank will cut interest rates by another 25 basis points to 4% by the end of 2026, narrowing the US-Philippine interest rate differential and weakening the attractiveness of the Peso. Furthermore, a major corruption scandal has led the country's economic growth in the last quarter to hit its lowest level in 14 years outside of the pandemic. Governor Eli Remolona of the Philippine central bank stated this month that the central bank will fully support the economy without triggering inflation.