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Baht Likely To Weaken Further if Donald Trump Wins US Election

The baht is expected to weaken further due to continuous capital outflows as the US presidential election approaches next month. It could drop below 34.50 baht to the dollar if Republican candidate Donald Trump wins, according to Kasikorn Research Centre (K-Research).

During Thursday’s morning trade, the Thai currency reached a new low of 33.84 against the dollar, its lowest point in over one and a half months, declining from 33.50 on Tuesday. This trend was observed as other regional currencies also lost ground against the dollar.

Kanjana Chockpisansin, head of research for banking and the financial sector at the think tank, explained, “There are fund outflows from the Thai stock and bond markets while the dollar receives support from US bond yields, as the Federal Reserve [Fed] has sent several signals that the central bank will cut the interest rates gradually.”

On Wednesday, yields on the benchmark 10-year US Treasury note climbed to their highest since July 25, reaching 4.26% in morning trading. This rise is attributed to concerns that the tight November election could exert additional pressure on bonds.

Kanjana also noted, “If Mr. Trump wins, there is a possibility that his government will spend a lot or borrow more money. That would make it harder for the US to reduce inflation and affect the Fed’s interest rate cut.”

“All of these factors support the dollar strengthening compared to Asian currencies, including the renminbi [yuan],” Ms. Kanjana added.

K-Research upholds Kasikorn Bank’s internal prediction that the Fed will cut US interest rates by 0.25% at each of its upcoming meetings in November and December.

Additionally, Kanjana mentioned that the Bank of Thailand is anticipated to keep its policy rates unchanged at its December meeting, following a reduction of 25 basis points earlier this month.

“We think the Bank of Thailand’s Monetary Policy Committee [MPC] will base its decision on rates on the Thai context rather than the Fed’s moves.”

Kavee Chukitkasem, head of research and content at Pi Securities, observed that capital continues to flow out of the Stock Exchange of Thailand (SET) as the US election on November 5 nears, noting that the SET’s current price-to-earnings ratio is viewed as expensive by institutional investors.

He explained, “Uncertainties concerning the US election are prompting investors to divest risky assets such as stocks or debt instruments, and increase their holdings of safer assets, particularly the dollar and gold. However, normally, stocks will rebound post-election no matter who wins.”