The baht is expected to weaken further, potentially dropping below 34.5 to the dollar in the short term, following a fall to a two-month low on Thursday. This decline comes as the market anticipates that the Federal Reserve will slow down its interest rate cuts in response to Donald Trump’s victory in the U.S. election, according to the Kasikorn Research Center (K-Research).
On Thursday, the baht was trading at 34.34-36 per dollar, down from Wednesday’s close of 34.17, influenced by a continued drop in the yuan. Other currencies, including the yen, also depreciated against the dollar, which strengthened significantly after Trump’s win in the Nov 5 election.
“The baht has weakened, and there are indications that capital may continue to exit the Thai bond market,” said Kanjana Chockpisansin, head of research for banking and financial sectors at the think tank, in comments to the Bangkok Post.
She noted that U.S. bond yields have risen as Trump is expected to push for substantial economic stimulus, which may require the new administration to issue bonds to finance this spending.
In light of reduced expectations for interest rate cuts by the Federal Reserve, the dollar has strengthened as investors have gravitated towards it. Previously, the market anticipated a 1 percentage point reduction in the policy rate from the central bank by the end of next year, following a 50-basis-point cut in September.
Kanjana stated, “We expect the Fed will implement another 25bps cut at its meeting this week and indicate that future cuts will depend on economic conditions. If this occurs, the baht could fall to a range of 34.70-80 against the dollar.”
Rakpong Chaisuparakul, senior vice-president of KGI Securities (Thailand), suggested that short-term depreciation of the baht is likely, especially following Trump’s election win. However, he warned that as the initial excitement fades, market focus may return to U.S. economic fundamentals, highlighting concerns over slowing growth and additional interest rate cuts.
Currently, Fed fund futures indicate expectations for the policy rate to decrease to 4.50% by the end of 2024, with only minor cuts of 50bps in 2025, culminating in a 4.00% rate. However, KGI economists retain a baseline forecast of a 100bps reduction in 2025 due to a likely cyclical slowdown or soft landing for the U.S. economy in the coming year.
