The baht may continue to appreciate after reaching a 19-month high of 32.2 baht per dollar on Monday. This potential rise is linked to expectations that the US Federal Reserve will implement a deeper interest rate cut, possibly exceeding 25 basis points, during its upcoming meeting this week. A decline in US inflation could lead the central bank to pursue a more substantial rate reduction.
The Thai currency strengthened from Friday’s close of 33.33 baht against the dollar, as investors moved to sell dollars ahead of the Federal Open Market Committee meeting scheduled for Wednesday, as reported by Kasikorn Research Center (K-Research).
The yen briefly rose to 139.73 per dollar, marking its highest level since July of last year. Treasury yields have also declined for the second consecutive week, with two-year notes reaching a two-year low on Friday amid renewed expectations of a 50-basis-point rate cut from the Fed.
Currently, markets are anticipating a 59% probability of a 50-basis-point cut on Wednesday, up from 30% a week earlier, marking potentially the Fed’s first rate cut since 2020.
“The market has long expected that the US central bank would reduce rates by as much as 50 basis points, but this expectation has not been fully factored in until now,” noted Kanjana Chockpisansin, head of research in banking and the financial sector at K-Research.
The baht could appreciate further if the Fed decides on a more aggressive rate cut beyond 0.25%, she explained, adding that K-Research forecasts the baht will trade within a range of 33.0-33.8 to the dollar this week.
In addition to the US, central banks in Japan and the UK are also scheduled to meet this week, with both expected to maintain their current positions after the European Central Bank lowered its deposit rates for the second time this year. Analysts suggest that the Bank of Japan is likely to raise interest rates but not during this week’s meeting.
Meanwhile, gold prices soared to record highs on Monday, fueled by a weaker dollar and expectations for a larger interest rate cut by the Fed this week.
Spot gold reached an all-time high of $2,589.23 early Monday before easing to $2,588.29. US gold futures increased by 0.2% to $2,615.80. The dollar weakened by 0.2%, making gold more affordable for holders of other currencies.
“The potential for the Fed to execute a 50-basis-point cut this week has caused gold and the dollar to move in opposite directions,” said Tim Waterer, chief market analyst at KCM Trade.
“Overall conditions for gold remain favorable, with more gains expected. If the dollar continues to decline, gold could reach $2,700 by the end of the year.”
