The baht gained against the softening US dollar as some investors expect the US Federal Reserve to maintain its policy rate at its meeting scheduled for this week.
The baht opened at 35.38 to the dollar on Tuesday, appreciating from the previous day's close of 35.58.
The local currency moved in a range of 35.28-35.45 to the dollar and closed at 35.35 on Tuesday.
Roong Sanguanruang, senior vice-president for global markets and research at Krungsri, said the strengthening baht was in line with the weakening dollar based on the Fed's expected monetary policy direction.
The latest US economic data showed stronger than expected growth, low unemployment, rising wages and falling inflation.
The scenario affirmed investor confidence in the likelihood of a Fed rate cut in March, said Ms Roong.
"The baht opened at 35.38 to the dollar, the strongest level in two weeks, after fluctuating significantly last week," she said.
"The currency fluctuated by a range of 2-3 baht for a couple of days earlier."
Apart from heightened uncertainties worldwide attributed to both economic and geopolitical factors, volatility of foreign exchange and commodity prices are expected to be high, said Ms Roong.
The local currency wavered in a range of about five baht compared with the greenback last year, and Krungsri expects the volatility to be steady at around 4-5 baht this year.
For the pre-pandemic period, volatility was around 2-3 baht.
However, last year the baht was the weakest currency amid regional peers, she said.
External factors, particularly the Fed's interest rate outlook, would be the key determinant affecting both the US dollar and baht this year, said Ms Roong.
The first Fed rate cut is expected to occur in July, with successive cuts throughout this year, according to Krungsri.
Regarding internal factors, there are no fresh fundamental factors affecting the baht significantly, said the company.
The government's concern over lower GDP growth and an economic crisis this year also dampened the confidence of foreign investment in local money and capital markets, noted Krungsri.
Krungsri forecasts the baht to move in a range of 33.5-34 to the dollar by the end of this year.
Poon Panitchpibul, a money market strategist at Krungthai Global Markets, said the baht would strengthen more than the previous forecast of 35.50 to the dollar. The unit forecasts appreciation to 35.20-35.30 to the dollar over the short term.
Baht volatility is higher than in recent weeks on average, and is expected to continue given uncertainty over the Fed's monetary policy direction as well as concerns regarding China's economic recovery.
As a result, business operators and entrepreneurs are urged to use a variety of tools such as options and derivatives to increase efficiency in hedging against exchange rate risks, said the unit.
Businesses can also limit foreign exchange exposure by making transactions in the local currency, Mr Poon said.