Baht likely to climb higher if Fed disappoints on rates

Baht likely to climb higher if Fed disappoints on rates

The baht, which traded at a six-week high of 35.86 to the United States dollar on Tuesday morning, is likely to appreciate further if the Federal Reserve fails to produce a clear statement about US interest rate trends at its meeting this week, say analysts.

Kanjana Chockpisansin, head of research at Kasikorn Research Center, said the baht has appreciated quickly from 36.50 to the greenback last week. Investors who held lots of dollars recently sold the US currency to reduce risks as they await the result of the Fed meeting on Oct 31-Nov 1.

High domestic gold prices have also prompted people to rush to gold shops to sell as the Middle Eastern war between Israel and Hamas is likely to intensify, said Ms Kanjana. As a result, gold shops have increased their gold exports, pushing the dollar to weaken against the baht, she said.

The baht remains highly volatile, falling to below 36.10 to the dollar before noon on Tuesday, said Ms Kanjana.

"Although most investors expect the Fed to maintain rates at this meeting, they are unsure about the December Fed meeting as US inflation is still higher than the Fed's target and higher oil prices can propel inflation," she said.

Another factor that could drive the Fed to hike the rate further or maintain a high interest rate for longer is the solid US labour market, promoting the Fed's concerns that inflation might not "go down as they had expected".

Poon Panichpibool, a currency analyst at Krungthai Bank (KTB), said the baht rebound was stronger and faster than currency traders expected, partly supported by the flow of gold trade profit-taking.

The US stock market opened to more risk following news that registered companies performed better than expected, he said.

Mr Poon said KTB now projects the baht could hit 35.80 to the dollar in a support zone, and should it break that level there is a chance it could hit 35.60 baht.

BMI, a unit of Fitch Solutions, expects the Fed to begin monetary loosening in the second half of 2024, with the Bank of Thailand likely to follow suit.

"Any pre-emptive return by the Bank of Thailand could exacerbate weakness in the baht, which has already weakened by about 5.0% year-to-date," the research unit of the New York-based financial information service said.

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