The baht, which slipped below 36 to the US dollar on Wednesday, is likely to depreciate further as US inflation was higher than forecast, prompting the market to believe the Federal Reserve might delay its first interest rate cut beyond May, as expected earlier.
The Thai currency was quoted at a three-month low of 36.13 baht against the greenback early Wednesday before edging up to 36.07-09 baht, compared with Tuesday's close of 35.7 baht, according to Kasikorn Research Center.
"The baht is moving in line with other Asian currencies, as the world gold price also fell below US$2,000 per ounce," said Kanjana Chockpisansin, head of research, banking and financial sector at the think tank.
The dollar and US bond yield increased sharply after the US consumer price index (CPI) rose 3.1% year-on-year in January, compared with the market estimate of 2.9%, while core CPI was 3.9%, beating the forecast of 3.7%, she said.
"Those readings might prompt the Fed to maintain rates for longer. The market now sees a lower probability of the Federal Open Market Committee's first rate cut in May, only tallying 35%," Ms Kanjana told the Bangkok Post.
"We see a possibility the baht will continue to weaken as US inflation declines slowly and other economic data are strong, leading us to believe the Fed might not cut rates as soon as the market earlier forecast."
Kobsidthi Silpachai, head of capital markets research at Kasikornbank, said the US inflation figure was mainly pushed by rising house prices.
The market now assesses the Fed will only cut the policy rate four times this year, down from an earlier forecast of seven times, said Mr Kobsidthi.
Under this scenario, the widening gap between the Thai and the US interest rates would remain for a longer period of time, which will continue to weaken the baht against the dollar, he said.
For the past three months, the baht ranks third in terms of volatility against the US dollar for regional currencies at 9.56%, compared with the Japanese yen at 9.79%, the South Korean won at 8.81%, Indonesian rupiah at 5.41%, Taiwanese dollar at 5.37%, and Malaysian ringgit at 4.99%.
Poon Panitchpibul, money market strategist at Krungthai Global Markets, expects the first Fed rate cut of the year in June, causing the baht to weaken as the dollar strengthens.
Krungthai forecasts baht fluctuation in a range of 35.66-36.10 to the dollar in the near term.
Kavee Chukitkasem, head of research and content at Pi Securities, said stubbornly high US inflation puts pressure on the prices of gold, Bitcoin, stocks and debt instruments.
"We have to wait until the Fed's meeting in either May or June to see whether the central bank cuts rates," he said.
As a result, it is hard to see a significant stock market rebound over the next couple months, with Pi projecting the Thai index to move in a range of 1,350 to 1,400 points by mid-2024, said Mr Kavee.