MANILA -- The Philippine peso is bracing for a potential jolt as U.S. President Donald Trump's promised crackdown on immigration threatens to disrupt global labor markets and squeeze the billions sent home by overseas Filipino workers, a key economic lifeline.
Over the past couple of weeks, global financial markets have been roiled by the other side of Trump's policies -- tariffs. But in the currency market, the peso has remained stable compared with regional peers such as the Indonesian rupiah, Thai baht and Singapore dollar, all of which have sharply weakened.
This is not the only time the Philippine currency has shown resistance against global shocks. In 2020, when the COVID-19 pandemic emerged, the peso remained resilient.
A major reason for this relative strength has been the ample flow of remittances into the country.
The Philippines is one of the world's largest labor exporters, a result of a policy enacted by then-President Ferdinand Marcos Sr., the father of the country's current president, back in 1974, when he ruled under martial law. This measure has driven millions of Filipinos to work abroad to lift their families out of poverty, as well as churn consumption around the country to this very day.
According to Bangko Sentral ng Pilipinas (BSP), the country's central bank, personal remittances in 2024 inched up 3% to $38.34 billion, a record high and equivalent to 8.3% of the Philippines' gross domestic product. A major portion of this originates from the U.S. Cash remittances -- money sent back home by overseas Filipinos through banks -- rose by a modest 3% in 2024 to $33.49 billion.
Other government data shows that there were 2.3 million Overseas Filipino Workers (OFW) as of 2023.
When global shocks occur, overseas Filipinos tend to send more money back home to help their families, giving a persistent "buy the dip" pressure to the peso and contributing to its stability. Currency traders and investors are aware of this remittance tendency, making them less active in selling the currency in such situations.
However, "stricter U.S. immigration policies could reduce labor mobility for Filipinos, affecting remittance growth," said John Paolo Rivera, senior research fellow at the Philippine Institute for Development Studies, a state-run think tank. A revamp in immigration policy will likely impact over 4 million Filipinos living in the U.S. Data from U.S.-based Pew Research Center estimates that about 350,000 Filipinos were residing as illegal immigrants in the U.S. as of 2022.
The current Trump administration has so far deported at least 137 people under the Alien Enemies Act, a move that has been widely condemned by rights groups. The act -- which was last used during World War II -- grants the U.S. president powers to order the detention and deportation of natives or citizens of an "enemy" nation without following usual due process.
There is, however, also an optimistic case to be made for remittance inflows.
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, noted that a tight U.S. labor market caused by Trump's immigration crackdown might increase incomes and start "to benefit remittances" sent home.
But remittances when viewed on a global scale face a gloomy outlook.
"Overall, though, globally, the general tightening in immigration policies in the Western world is bad news for Philippine manpower exports and, by extension, future growth in remittances," the U.K.-based economist said.
Though the peso has held steady in the face of recent events, it had been weakening against the greenback before Trump reentered the White House. The Philippine currency strengthened to 55-56 levels against the dollar in September 2024, but by November and December, it had weakened to around 58, and neared its record low of 59 set in October 2022.
The peso hovered at 58 at the start of this year, then strengthened to 57 in March. Rivera noted that the peso's performance will depend on a range of events, including the U.S. Federal Reserve's behavior, Trump's trade war and his immigration policies.
"If the Fed delays rate cuts due to persistent inflation, the U.S. dollar could stay strong, putting depreciation pressures on the Philippine peso," he said. "The BSP's monetary policy will be critical. Relaxing rates too soon could widen the interest rate differential, prompting capital outflows and weakening the Philippine peso."
Interest rates in the Philippines currently stand at 5.5%, after the central bank cut its policy rate by 25 basis points at its meeting on Thursday. The Philippines began loosening monetary policy only last year, a measured approach as it sought to perk up the domestic economy from lingering pandemic woes.
Chanco expects the peso to see some "modest appreciation" this year. He explained that the central bank's ongoing monetary easing cycle will exert "downward pressure" on the peso.
"At the same time, the Philippines' deficit on the current and fiscal accounts should be in slightly better shape this year, which coupled with lower average inflation, is a fundamentally better environment for the currency," he told Nikkei Asia.
Chanco noted that the peso is a relative "safe haven" since the Philippine economy runs on domestic demand to power growth, which means it won't be as "badly affected" compared with export-oriented economies.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., noted that while some overseas Filipinos and their families benefited from a weak peso, Trump's "protectionist policies" will pose a risk to remittances since these could potentially reduce the amount of such money coming in from the U.S. due to a general slowdown in the world economy.
The U.S. introduced a host of new tariffs on April 2, stoking a trade war with neighbors and allies. This included 18% duties on imports from the Philippines. The levy was later limited to 10%.
"Trump's threats of higher tariffs and America-first policies could also slow down global trade, investments, employment, including some jobs of overseas Filipino workers, and overall world economic/GDP growth, and thereby could also indirectly slow down the growth in OFW remittances from other countries around the world," Ricafort said.
Analysts and traders view that a potential meeting -- being reported in local news -- between Philippine President Ferdinand "Bongbong" Marcos Jr. and Trump at the White House in coming months could shake the peso's valuation.
"If the visit escalates geopolitical tensions with China, it could introduce market uncertainty, affecting the Philippine peso," said Rivera. "The market will react based on whether concrete economic agreements come out of the visit." The more detailed the agreements turn out to be, the stronger the peso will get, he added.
A visit by Marcos Jr. would come at a chaotic time for global markets and international relations. Geopolitical tensions continue to build in the South China Sea, a flashpoint in the region, and the solidity of U.S. support under a second Trump administration has been put into question.
This cloud of Trump-driven uncertainty has compelled the Philippines to court new defense allies. Already, countries like France, Canada, Japan and New Zealand are in the process of negotiating military interoperability agreements with Manila.
Additional reporting by Ella Hermonio.
