The baht experienced a decline against the dollar on Monday, reflecting broader trends in Asia and concerns over a struggling Chinese economy. Analysts indicate that the baht may continue to depreciate in the upcoming months if the US Federal Reserve (Fed) opts for a rate cut less than the 1% anticipated by the market.
On Monday, the baht slipped by 0.5%, trading below 34.20 to the dollar, a drop from last Friday’s 13-month high of 33.85. Other emerging Asian currencies also weakened against the US dollar, leading to a downturn in regional stock markets, including the Stock Exchange of Thailand (SET). This decline comes as China’s efforts to rejuvenate its economy have yet to yield significant results.
The dollar’s value surged to its highest point since August 21 against the yen, driven by rising long-term treasury yields, reaching levels not seen since mid-August. This increase follows stable US inflation data, which has diminished expectations for a significant rate cut by the Fed on September 18.
Market experts note, “The dollar’s strength and rising US bond yields suggest a greater likelihood of a 0.25% rate cut rather than a 0.5% reduction this time around.” Additionally, if the Fed’s forthcoming meeting emphasizes concerns related to inflation, the baht could face further pressure as the dollar strengthens.
Projections indicate that if the Fed does not meet market expectations for rate reductions, a wave of US dollar purchasing could push the baht downward for the remainder of the year, potentially ending the year at around 34.5 to the dollar.
The Tisco Economic Strategy Unit also echoes concerns about US monetary policy’s impact on the baht, particularly in light of the upcoming US presidential election on November 5. A victory for Donald Trump could bolster dollar strength, as his policies may lead to increased import tariffs and changes in domestic economic conditions.
Analysts advise that investors should keep a close watch on the Fed’s decisions and the upcoming US presidential debates to better understand the future trajectory of the baht throughout the year.
