The Thai baht is likely to face increased volatility and a downtrend this week, influenced by uncertainties related to the US dollar and the direction of the Federal Reserve’s monetary policy.
The Bank of Ayudhya (Krungsri) predicts that the baht will fluctuate between 35 and 35.75 baht per dollar during this period.
The depreciation and fluctuations of the dollar, influenced by the latest US economic indicators and the Federal Reserve’s monetary policy, are major factors affecting the baht’s performance.
On Tuesday, the baht weakened to 35.51 per dollar, down from Monday’s closing rate of 35.26, in response to the latest US economic updates.
On Monday, the baht saw significant appreciation against the greenback, triggered by a weaker dollar following reports of rising inflation and unemployment rates in July, which stoked fears of an impending US economic recession.
In light of these developments, Krungsri Global Markets estimates a 70% chance that the Federal Reserve will reduce its policy rate in September.
Despite ongoing external uncertainties, the baht is anticipated to continue experiencing volatility when paired with the dollar. Nonetheless, last week the baht reached its highest value in five months, trading between 35.34 and 35.70 baht per dollar.
Krungthai Global Markets expects the baht to face volatility and weaken to a range of 35.50-35.65 this week, while SCB Financial Markets predicts a range of 35.35-35.55 baht per dollar.
Amonthep Chawla, the chief economist at CIMB Thai Bank (CIMBT), anticipates the Federal Reserve may reduce its policy rate three times this year—in September, November, and December—by 0.5 percentage points each to curb inflation.
This scenario could significantly influence global capital flows, impacting Thai financial markets, though CIMBT still expects the Bank of Thailand’s Monetary Policy Committee to cut the policy rate by 0.25 percentage points in December, from 2.5% to 2.25%.
Mr. Amonthep noted that while there are no clear signs of a recession in the US currently, the situation demands close observation.
Should a US recession occur, it might negatively affect Thailand’s manufacturing and export sectors, potentially damaging the broader economy.
“If a US recession occurs and affects Thailand’s manufacturing and exports, we may have to lower the Thai GDP growth projection for this year below the current forecast of 2.3%,” Mr. Amonthep said.
