SCB FM points out that the baht is strengthening rapidly, watch for short-term depreciation from Tariffs, expect the MPC to cut interest rates

SCB FM reveals that the baht is strengthening faster than other currencies in the region. In the short term, it is expected that the baht may weaken due to the increase in US tariffs and the slowdown in the Thai economy, causing the MPC to cut interest rates in Q2.

22 April 2568 Mr. Wachirawat Banchuen, Senior Financial Market Strategist, Financial Markets Division, Siam Commercial Bank Public Company Limited It was revealed that the baht has been fluctuating strongly in the past. In the early period when Trump announced the retaliatory tariffs, the baht against the US dollar weakened to near 35.00. However, after Trump announced the postponement of the retaliatory tariffs for 90 days, the baht quickly strengthened to near 33.00 baht against the dollar. It can be seen that the baht's rapid appreciation is mainly due to external factors, which caused the US dollar index to continuously weaken because the market views that the US will be more affected by the import tariffs than other major economies due to the potential worsening of consumption and employment, which will reduce confidence in US assets.

In addition, the market recently became concerned about the dismissal of Jarome Powell from the position of Chairman of the US Federal Reserve (Fed), resulting in an accelerated sell-off of US assets, US stock market indices falling, US Treasury yields rising, and the dollar index continuing to weaken.

The baht may weaken again in the short term, with a range of around 33.50-34.50 per US dollar, as

1.) The US may reintroduce some Tariffs after 90 days, which may weaken Asian currencies including the baht and may strengthen the dollar index.

2.) It is expected that most Asian central banks will allow their currencies to depreciate against the US dollar, as this will help cushion some of the effects of the tariffs. The Chinese government intentionally allowed the yuan to depreciate, as reflected by the CNY fixing, which quickly depreciated to near 7.20 per dollar after the announcement of the reciprocal tariffs, even though the People's Bank of China (PBOC) had previously maintained the fixing at around 7.17-7.18 for 2 consecutive months.

3.) Thailand's economic figures are likely to worsen as a result of the Tariffs measures. It is believed that Thailand's trade balance will worsen, and the increasing uncertainty will affect investment and production, which may be stagnant. Therefore, the MPC is likely to reduce interest rates from the second quarter of this year, with the earliest possible reduction at the end of April.

In the long run, the baht may strengthen. We see a range of around 32.50-33.50 per US dollar at the end of this year. The main factor is likely to be the weakening dollar index due to declining confidence in US assets. In the baseline case where the US economy is weakening but not reaching the recession stage (unwinding US Exceptionalism), while inflation is accelerating slightly, perhaps between 3-4%, the Fed may cut interest rates three times this year starting from the middle of this year. SCB FM believes that this will cause the US dollar index to weaken against other currencies, including the baht, and capital will likely continue to flow out of the US, with some flowing into the European stock market and the EM Asia bond market.

In addition, other major currencies are also likely to strengthen against the dollar, such as the euro and the yen. The euro is likely to strengthen due to government stimulus measures, while the yen is likely to continue to strengthen following the Bank of Japan's interest rate hike. It is also expected that private sectors, such as the insurance sector, are ready to move capital back into the Japanese bond market. Finally, the continuously increasing gold price due to demand for safe assets will help push the baht to strengthen. The latest gold price has reached a record high of around $3,500 per ounce.

SCB FM believes that in the future, there is still a chance for it to continue to increase because trade tensions have created turmoil in the financial market and undermined confidence in dollar-denominated assets, resulting in a continuous increase in demand for safe assets, especially gold. In addition, there has been a continuous flow of funds into gold-backed ETFs, which has helped support the price of gold, including continuous gold purchases by central banks in many countries. The higher price of gold will support the baht's further appreciation.

However, it is believed that there are still risk factors that could cause the baht to move differently than estimated, such as the trade war or the dismissal of Jerome Powell from the position of Fed Chairman. If Thailand is still unable to reach a trade agreement with the United States to reduce taxes by July, confidence could decrease. In addition, the trend of domestic factors that may be weak in H2 could pressure the baht to weaken more than expected. In this case, the baht may weaken back to the range of 35.00-36.00 per dollar.

However, if Trump fires Jerome Powell, it could cause US government bond yields to rise faster (bond yields spike) and the dollar index to weaken further, pressuring the baht to appreciate closer to 32.30 baht per dollar.

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