The baht continues to weaken against the US currency, falling to 37.04 per dollar as the US bond yield rises in line with improving economic data.
The baht opened at 37.07 to the dollar on Tuesday, depreciating from Monday's close of 36.96, then registered gradual strengthening.
The value of the baht fluctuated in a range of 36.91-37.50 per dollar during trade on Monday.
Sakkapop Panyanukul, senior director of the economic and policy department at the Bank of Thailand, said the baht has been more volatile recently, depreciating by 6.8% this year, which is in line with regional currencies.
He said the recent depreciation was mainly the result of external factors, particularly the strengthening of the greenback as the US Federal Reserve is maintaining high interest rates longer than expected even as that country has a faster economic recovery than other developed nations.
Other factors include pressure from falling gold prices, which have dropped to their lowest level in seven months, and increasing oil prices, which reached a high for 2023, which may affect the country's current account balance, said Mr Sakkapop.
The central bank is watching the currency's movement and is ready to manage the baht if there are irregularities, it said in a statement yesterday. Investors are awaiting clarity on the government's fiscal policies and funding, said the regulator.
During this period of high uncertainty, the private sector should manage risks to reduce the impact of financial market fluctuations, said the central bank.
Poon Panichpibool, market strategist at Krungthai Global Market, the research centre of Krungthai Bank, said he believes the baht's depreciation may be greater than expected and last longer as the dollar strengthens and 10-year US bond yield rises.
Investors can expect the Fed to maintain high interest rates for a prolonged period to control inflation in this scenario, he said.
Mr Poon said the baht will possibly weaken as the dollar strengthens and the gold price declines. The research unit assesses the baht to weaken to 37.15-37.25 to the dollar in the short term.
The Thai currency could drop to 37.50 per dollar in the short term if the Fed increases its benchmark rate further, said the research house.
Roong Sanguanruang, head of global markets and research at Bank of Ayudhya (Krungsri), said the 10-year US bond yield rose to 4.7%, marking its highest level in 16 years, which pressured gold prices to decline.
As a result, Thai gold traders imported the commodity, which further weakened the baht against the dollar.
The Fed's "higher for longer" monetary policy has affected currencies globally compared with the dollar. In September, the baht depreciated by 4.3%, the largest downturn in the region, followed by South Korea's won losing 2%.
The baht is expected to continue depreciating in the fourth quarter based on both external and internal factors, according to Krungsri.
The baht fell to a 11-month low against the dollar, resulting in continued fund outflows as investor concerns grew over the expected massive bond issuance to fund the government's planned 10,000-baht digital wallet handout scheme, estimated to cost 560 billion baht.
Kanjana Chockpisansin, head of research at Kasikorn Research Center, said the think tank projects the baht could depreciate to 37.55 to the dollar in the short term.
"Earlier we anticipated the baht would stay around 36.6 to the greenback, but our view changed after the currency slipped below the 37-baht mark," she told the Bangkok Post yesterday.
The baht has depreciated 6.8% this year to 37.04 from 34.66 at the end of 2022. Compared with regional peers, the Thai currency was the third-worst performer after the Japanese yen and Korean won, which have weakened 12% and 7.7%, respectively.