Thai baht surges as US dollar weakens ahead of Federal Reserve meeting

The Thai baht experienced an upturn against a weakening US dollar, with investors predicting the US Federal Reserve to hold its policy rate steady in the upcoming meeting this week. The baht yesterday, January 30, initiated at 35.38 to the dollar, a rise from Monday’s close at 35.58. The local currency fluctuated between 35.28 and 35.45 against the dollar and concluded Tuesday at 35.35.

Roong Sanguanruang, a senior executive at Krungsri, attributed the baht’s surge to the anticipated monetary policy direction of the Federal Reserve, which led to a decline in the dollar’s strength. Recent US economic data showed better-than-expected growth, low unemployment, wage increases, and a drop in inflation, boosting investors’ confidence in a March Fed rate cut, said Roong.

“The baht opened at 35.38 to the dollar, the strongest level in two weeks, after fluctuating significantly last week. The currency fluctuated by a range of 2-3 baht for a couple of days earlier.”

Roong also pointed out high foreign exchange and commodity price volatility due to economic and geopolitical uncertainty. The baht fluctuated around five baht against the dollar last year, and Krungsri anticipates a steady fluctuation of around 4-5 baht this year. However, Roong noted that the baht was the weakest currency among its regional counterparts last year.

Roong believes that external factors, primarily the Federal Reserve’s interest rate outlook, would significantly influence the US dollar and the baht this year. Krungsri expects the first Fed rate cut to happen in March, followed by subsequent cuts throughout the year. Regarding internal factors, Krungsri stated that there are no new fundamental factors considerably affecting the baht.

Krungsri also highlighted the government’s concerns over a potential economic crisis and lower GDP growth this year, which have undermined foreign investment confidence in the local money and capital markets. The firm predicts the baht to fluctuate between 33.5-34 to the dollar by the year-end, reported Bangkok Post.

Poon Panitchpibul, a money market strategist at Krungthai Global Markets, suggested that the baht would appreciate more than the previous prediction of 35.50 to the dollar, forecasting an appreciation range of 35.20-35.30 to the dollar in the short term. He also advised businesses to use various tools like options and derivatives to efficiently hedge against exchange rate risks and encouraged transactions in the local currency to limit foreign exchange exposure.

In related news, K-Research predicted a Thai baht depreciation against the US dollar due to strong US economic data and high interest rates.