The Thai Baht might weaken further to below 34.5 against the dollar shortly after dropping to a two-month low on Thursday, as markets adjust their expectations for the Federal Reserve’s pace of interest rate cuts following Donald Trump’s election victory, according to the Kasikorn Research Center (K-Research).
On Thursday, the baht ranged between 34.34 and 34.36 against the dollar, a decrease from Wednesday’s closing rate of 34.17, influenced by the ongoing depreciation of the yuan.
Similarly, other currencies, like the yen, weakened against the dollar, which saw a significant boost following Trump’s win in the November 5 election.
Kanjana Chockpisansin, head of research for banking and financial sectors at the think tank, said, “The baht depreciated, and there are signs that funds will continue to flow out of the Thai bond market.”
“The US bond yield rose as Trump is expected to spend a lot to stimulate the economy, and the new administration might have to issue bonds to finance massive spending.”
The dollar has strengthened as traders buy up the US currency, recalibrating their expectations for fewer rate cuts by the Fed.
Markets had initially anticipated the US central bank to reduce its policy rate by another 1 percentage point by the end of next year, following a 50-basis-point cut in September.
“We expect the Fed to trim the rate by another 25bps at its meeting this week and will clearly state after the meeting that further cuts depend on economic conditions. If so, it is possible the baht could slip to a range of 34.70-80 against the dollar,” said Ms. Kanjana.
Short-term depreciation is likely as markets react to Trump’s initial policy moves, observed Rakpong Chaisuparakul, senior vice-president at KGI Securities (Thailand).
However, as the initial reactions to Trump’s victory subside, the focus is expected to shift back to US economic fundamentals, which suggest a slowing economy and the possibility of more rate cuts, he noted.
Fed fund futures now foresee the central bank reducing the policy rate to 4.50% by the end of 2024, with a further 50-basis-point cut in 2025 to conclude the cycle at 4.00%.
Nonetheless, KGI economists hold a baseline scenario of a 100-basis-point cut in 2025, as they predict the US will likely face a cyclical slowdown or a soft landing next year, Mr. Rakpong added.
