Baht Faces Renewed Decline Amid Mideast Tensions, Potential for 2025 Low

The Thai baht is facing renewed depreciation pressure against the US dollar amid escalating tensions in the Middle East. Krungthai Global Markets forecasts that the baht will likely remain under depreciation pressure in the near term as geopolitical risks intensify. The Thai currency could weaken to between 34.00 and 34.40 baht per US dollar this week, the research house said. Last week, the baht fell to a 14.5-month low of 33.64 per dollar, in line with a sharp decline in global gold prices to below US$4,000 per ounce. Meanwhile, the US dollar regained strength as global oil prices surged on concerns that the conflict in the Middle East could become more prolonged following reports of continued clashes between the US and Iran since July 11. Poon Panitchpibun, a money market strategist at Krungthai Global Markets, said the baht is expected to test the key resistance range of 33.75-33.80 per dollar, with the next resistance level seen at 34.00 in the near term. Against a backdrop of heightened uncertainty, the baht is projected to remain volatile due to geopolitical tensions and a stronger US dollar, supported by expectations surrounding the US Federal Reserve's monetary policy. The baht could rebound if geopolitical tensions ease or investors scale back expectations of further interest rate hikes by the Fed. However, any appreciation is likely to be limited to around 33.40-33.50 per dollar, with stronger support at 33.00. "A significant shift in market expectations for US interest rates could move the baht by at least 25 satang," Poon said, adding that businesses and investors should adopt a range of hedging strategies, including the use of options, to better manage foreign exchange risk. Meanwhile, Krungsri Global Markets expects the baht to trade between 33.30 and 34.00 per dollar this week. The depreciation is expected to be driven mainly by the fresh rally in global oil prices amid escalating tensions in the Middle East. The US dollar weakened against most major currencies last week, with the exception of the Japanese yen, after softer-than-expected US inflation data for June. Headline and core inflation eased to 3.5% and 2.6%, respectively, according to Krungsri. Bank of Thailand Governor Vitai Ratanakorn said last week that the central bank has been closely monitoring developments related to the renewed escalation of tensions in the Middle East. The central bank stands ready to manage baht movements in line with Thailand's economic fundamentals. Mr Vitai said the baht's movements remain broadly in line with those of other regional currencies, adding that the weaker currency has supported Thailand's exports and tourism sectors. However, he warned that a prolonged conflict in the Middle East could raise inflation expectations and weigh on the country's economic growth outlook.