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The Thai baht has reached a six-week peak against the US dollar, according to analysts at Kasikorn Research Centre. The surge is largely due to investors offloading US currency in anticipation of the Federal Reserve meeting and a spike in domestic gold prices, fueled by escalating conflict in the Middle East. This situation has led to a boom in gold shop sales and gold exports.
Despite the baht's recent strength, it experienced volatility, falling below 36.10 against the dollar. The future of the Federal Reserve's rate decision remains unclear due to high US inflation and oil prices. A strong US labor market could potentially lead to a rate increase or sustain high interest rates.
Krungthai Bank pointed out the baht's stronger-than-expected rebound, influenced by profit-taking in gold trade and increased risk in the US stock market. They attribute the stronger-than-expected baht rebound to gold trade profit-taking. Increased risk in the US stock market is due to better-than-expected company performance.
BMI, a unit of Fitch Solutions, anticipates that the Federal Reserve will loosen monetary policy in H2 2024, with the Bank of Thailand expected to follow suit. However, any premature action by the Bank of Thailand could further weaken the baht, which has already depreciated by about 5.0% year-to-date.
Earlier this week, Kasikorn Research Center suggested that if the Federal Reserve fails to clarify US interest rate trends at its meeting, the Thai baht could appreciate further. The escalating Israel-Hamas conflict has increased domestic gold prices and exports, causing the dollar to weaken against the baht.
However, volatility persists in the baht due to uncertainties over the December Fed meeting, with US inflation surpassing Fed targets and potential inflationary pressure from high oil prices. The strong US labor market may prompt the Fed to maintain or hike interest rates longer than anticipated. Predictions suggest that the baht could hit 35.80 and potentially even 35.60 against the dollar.
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