Thai Baht Faces Volatility Ahead of Thai-Japanese Elections

The Thai baht continues to face downward pressure, fluctuating between 31.70 and 31.95 THB per US dollar. The US dollar strengthened due to expectations surrounding the Bank of England’s decision to hold its key interest rate at 3.75%, with more votes in favour of cutting rates than anticipated by the market.

Analysts also point to the global ‘risk-off’ sentiment that has been strengthening the dollar, despite disappointing US economic data, such as higher-than-expected unemployment claims, which helped cap the dollar's rise.

On the evening of February 6, the Bank of Thailand’s research centre reported that the Thai baht opened at 31.80 THB per dollar but briefly strengthened to 31.72-31.74 THB per dollar, supported by a stronger yen and a rebound in gold prices. However, Krungthai GLOBAL MARKETS strategist, Poon Panichpibool, noted that the baht showed signs of stabilising slightly above the 31.75-31.80 THB per dollar range, which had acted as a resistance level.

The strengthening of the US dollar, according to Poon, stems from the weakening of other major currencies, especially the British pound (GBP), after the Bank of England (BOE) opted for a 5-4 vote to keep interest rates at 3.75%. The decision surprised the market, as more members of the BOE’s policy board voted for a rate cut than expected.

Additionally, the ‘risk-off’ sentiment in global financial markets, amid concerns about the impact of geopolitical risks and a slowdown in global economic activity, has also boosted the US dollar. Despite this, the S&P 500 index closed down 1.23%, and the Nasdaq fell 1.59%, reflecting market anxiety, particularly within the software sector, which has been heavily impacted by AI developments. Gold (XAUUSD) also faced downward pressure, briefly testing the $4,700 per ounce level as tensions in the Middle East began to ease.

A major focus for the market is the upcoming elections in Thailand and Japan on February 8, 2026. The research centre suggests that if the market remains in a ‘risk-off’ mode, the baht could test the 32.00 THB per dollar level, especially after the Thai election results are announced. Historically, the baht has shown volatility in the month following election results, with fluctuations of up to +/-3%. However, the baht has typically appreciated by around 2% in the immediate aftermath of the election, though the 2023 election saw the baht depreciate by over 3% due to political uncertainty and the failure to form a government.

Three scenarios for the Thai financial market post-election:

Scenario 1: Continuation of the current government

If the current coalition government led by the Bhumjaithai Party and the old power factions retains control, the policies are expected to remain the same, focusing on short-term economic stimulation and infrastructure investment. In this scenario, government bond yields are expected to remain stable or rise slightly, supported by increased fiscal spending to stimulate the economy. The baht is likely to stabilise or appreciate slightly, bolstered by confidence in the tourism sector, while the Thai stock market will likely react positively to the continuity of policy.

Scenario 2: Opposition wins the election

If the opposition party wins, it will lead to structural reform agendas and changes in welfare policies. In this case, government bond yields will likely experience higher uncertainty and volatility, as the market will need to assess the balance between fiscal discipline and new spending plans under the reform agenda. The baht will face greater uncertainty, with concerns over short-term capital outflows. The stock market will likely see mixed reactions, with technology and modern industry sectors potentially performing well, but traditional businesses facing more uncertainty.

Scenario 3: A fragmented parliament

If there is a divided parliament, leading to a weak coalition government, investor confidence may sharply decline. This would result in the baht depreciating, with capital flight and a potential negative impact on the stock market, particularly due to delays in policy approvals. Government bond yields would likely rise, driven by the "premium for uncertainty," as investors would demand higher returns to compensate for the lack of political stability and protracted government formation talks.

The report concludes that, on average, the baht is likely to appreciate following the election results, but could weaken in the second month after the election due to rising political uncertainty, unless, as in 2023, the election results lead to difficulties in forming a government.

Impact of delayed government formation on the economy

A delay in forming a government could lead to a slowdown in budget disbursements, which would put pressure on economic growth. The Bank of Thailand has already assessed this impact, predicting a GDP growth rate of around 1.5% for the year.

Three investment strategies to handle volatility:

Long positions in tourism and consumption: These sectors are expected to benefit from increased spending during the election period and the ongoing recovery in tourism.

Long positions in infrastructure and utilities: Stable sectors likely to receive continuous government support.

Tactical short positions on USDTHB: Investors are advised to take advantage of expected baht appreciation before the election due to capital inflows and to monitor the political stability post-election, waiting to sell USDTHB near key resistance levels.

These strategies are based on polling data and party policies as of early February 2026, and investors should monitor the situation closely as economic conditions and market dynamics could change rapidly.