Thai Baht Plummets Beyond 34 per USD Amid Trump’s Tariff Hike, Raising Volatility Concerns
The Thai baht has significantly depreciated beyond the 34-per-dollar mark following a major tariff announcement by former U.S. President Donald Trump. The currency weakened from last week’s closing rate of 33.67 per dollar to 34.03 per dollar, with analysts warning of heightened volatility and a further downtrend due to escalating trade tensions.
Baht Under Pressure Amid Rising Trade Barriers
Since last Friday, the baht (USDTHB) has seen sharp depreciation, fluctuating between 33.54 and 34.17 per dollar. Initially, the baht showed some resilience, benefiting from a weaker U.S. dollar and rising gold prices following the latest U.S. inflation report. The Personal Consumption Expenditures (PCE) inflation for December stood at 2.6%, with core PCE at 2.8%, aligning with market expectations and alleviating concerns over inflationary pressure.
However, market sentiment shifted dramatically following the U.S. administration’s decision to impose new import tariffs on goods from Mexico, Canada, and China. This move triggered fears of prolonged inflationary pressure in the U.S., potentially leading the Federal Reserve (Fed) to delay anticipated interest rate cuts.
Shifting Fed Expectations Strengthen the Dollar
In response to the latest developments, market participants have revised their expectations regarding the Fed’s monetary policy. The probability of the Fed implementing two rate cuts (50 basis points) this year has dropped to 60%, while expectations for a 25-basis-point cut next year have declined to 78% from over 90%. This shift has fueled a stronger U.S. dollar, especially against major currencies like the euro (EUR) and British pound (GBP), amid concerns that Washington may extend its protectionist policies to European imports.
Key Domestic Indicators to Watch
In Thailand, investors will closely monitor key economic indicators, including the Consumer Price Index (CPI), manufacturing PMI, and business sentiment index for January. The headline CPI is expected to rise by 0.10% month-on-month or 1.30% year-on-year, primarily driven by increasing fresh food prices. However, declining energy prices could weigh on overall inflation.
Additionally, foreign investors are expected to continue offloading Thai equities due to global risk aversion. The movement of the Chinese yuan (CNY), which has shown a strong correlation with the baht (over 70%), will also be a critical factor influencing Thailand’s currency outlook.
Baht’s Outlook: Further Weakening Ahead?
Trend analysis suggests that the baht is at risk of further depreciation, especially if it breaks past the 34.10-34.20 resistance level. A sustained weakening could be exacerbated by continued dollar strength, uncertainty surrounding U.S. trade policies, and capital outflows from Thai markets. However, any resurgence in gold prices could provide temporary support for the baht.
Krungthai GLOBAL MARKETS recommends that businesses and investors diversify their risk management strategies. Given the rising volatility in currency markets, hedging through a mix of financial instruments such as options, forward contracts, and local currency trades may be prudent.
While the dollar remains strong in the short term, a potential reversal could occur if upcoming U.S. economic data—particularly job market figures—come in weaker than expected. Until then, the baht is likely to remain under pressure, making it crucial for market participants to stay vigilant against ongoing currency fluctuations.