The baht yesterday depreciated to beyond 32 to the US dollar, its weakest level in more than two months, on mounting concerns over local political tensions after the Internal Security Act (ISA) was extended to cover all areas of Greater Bangkok.
A foreign exchange dealer at TMB Bank said the continuing selling spree by foreign investors in the equities and bond markets also weighed on sentiment for the local currency.
The baht passed the 32 level in the early morning session before profit-taking helped it bounce back to just shy of the 32 mark, closing the day at 32.01/32.03 to the dollar compared with 31.96/31.98 on Monday.
Despite foreign investors' selling pressure, shares yesterday staged a technical rebound, snapping a three-day losing streak.
The Stock Exchange of Thailand index rose by 0.43% to close at 1.358.69 points in brisk trade worth 50.2 billion baht.
Thai shares have dipped 5.83% since Oct 31, when the opposition Democrat Party started holding street protests to oppose to the government's blanket amnesty bill.
Foreign investors have pulled 41.8 billion baht out of the Thai stock market and more than 40 billion out of the bond market month-to-date.
"Political anxiety is the main reason for the baht's weakness," said the dealer.
Prime Minister Yingluck Shinawatra imposed the ISA across the capital and nearby areas after anti-government protesters seized the Finance and Foreign ministries in a bid to overthrow the government.
The baht's downward trend is expected to continue, as there is no clue when the political situation will improve, said the dealer.
A currency dealer at another local bank said the ISA's extension reflects the escalating situation and higher risk of violence.
Investors are worried this will take a toll on tourism, investment, consumption and the economy as a result, said this source.
But the source said the market expects the Monetary Policy Committee will maintain the policy rate unchanged at 2.5% for a fourth straight meeting in the final rate call this year, scheduled for today.