Baht weakens against US$ as investors await BOJ and ECB meetings

Krung Thai Bank's foreign currency analyst, Poon Panitpiboon said the baht has been moving within a sideways range near 35.50 baht per US dollar, fluctuating within the range of 34.43-35.57 baht/US$ since Friday.

There was a slight depreciation following the strengthening of the dollar after the positive consumer sentiment index report. However, the “risk-on” sentiment in the US financial market, which boosted the stock market indices like the S&P500 to new highs, has contributed to the slowdown of the dollar's appreciation and supported the gradual strengthening of the baht.

In the past week, the baht depreciated as players in the market gradually reduced expectations for an early and deep rate cut by the Federal Reserve. Foreign investors also continued to sell Thai assets. This week, investors are advised to monitor economic data from the US such as the personal consumption expenditures (PCE) inflation rate and purchasing managers index (PMI) indices, as well as the outcomes of the meetings of the European Central Bank (ECB) and the Bank of Japan (BOJ).

The BOJ is expected to keep its policy settings unchanged at its meeting on Tuesday, while the ECB is expected to raise interest rates by 25 basis points at its meeting on Thursday.

Momentum for the baht's depreciation may slow down slightly following the gradual reduction of expectations for a rapid and deep Federal Reserve rate cut in March, Poon said, adding that the baht still has the potential for some depreciation if foreign investors continue to sell Thai assets.

He advises that attention should be paid to the direction of gold prices, as gold has rebounded from the support zone, and players in the market may gradually sell profits from the gold rebound, which could help to somewhat mitigate the US dollar's strength or contribute to the gradual strengthening of the baht.

Nonetheless, factors supporting the strength of the dollar persist. If economic data from the US turns out better than expected, it could lead market participants to stop believing that the Fed will quickly reduce interest rates. Moreover, the outcomes of the ECB and BOJ meetings suggest that both major central banks may have more accommodative monetary policies than the Fed, pressuring both the Euro and the Japanese Yen to depreciate.

Poon recommends that market participants utilise a variety of risk management tools, especially amid the fluctuation of the baht and other currencies that are higher than in the recent past. Traders may consider such using additional tools as options or local currency pairs to hedge against exchange rate risks. The baht's framework for this week is expected to be within the range of 35.20-35.80 baht per US dollar. As for today, the baht's range is anticipated to be around 35.45-35.65 baht/US$, according to Poon.