The Thai baht has hit a six-week high against the US dollar, according to analysts at Kasikorn Research Center. The rise is largely due to investors dumping the US currency in anticipation of the Federal Reserve meeting and a surge in domestic gold prices fueled by the escalating conflict in the Middle East. This situation has led to a boom in gold shop sales and gold exports.
Despite the baht’s recent strength, it experienced volatility and fell below 36.10 against the dollar. The future of the Federal Reserve’s interest rate decision remains unclear due to high US inflation and oil prices. A strong US labor market could potentially lead to a rate hike or maintain high interest rates.
Krungthai Bank noted that the baht’s stronger-than-expected rebound was influenced by profit-taking in gold trading and increased risk in the US stock market. They attributed the stronger-than-expected baht rebound to profit-taking in gold trading. The increased risk in the US stock market is due to better-than-expected corporate earnings.
BMI, a unit of Fitch Solutions, expects the Federal Reserve to ease monetary policy in the second half of 2024, with the Bank of Thailand expected to follow suit. However, any premature action by the Bank of Thailand could further weaken the baht, which has already depreciated by about 5.0% year-to-date.
Earlier this week, the Kasikorn Research Center suggested that the Thai baht could appreciate further if the Federal Reserve fails to clarify US interest rate trends at its meeting. The escalating Israeli-Hamas conflict has boosted domestic gold prices and exports, causing the dollar to weaken against the baht.
However, volatility in the baht remains due to uncertainties surrounding the Fed‘s December meeting, with US inflation above the Fed’s target and potential inflationary pressure from high oil prices. The strong U.S. labor market may prompt the Fed to maintain or raise interest rates for longer than expected. Forecasts suggest that the baht could reach 35.80 and possibly even 35.60 against the dollar.