Summary · why it matters
Patrick Poullie, Head of Financial Markets at Siam Commercial Bank, or SCB, said the bank estimates the baht will move within a range of 33.25 to 33.85 per US dollar for the remainder of this year, noting that external factors, especially the war in the Middle East and the direction of global interest rates, remain the main pressures, causing the baht to swing with crude oil prices and the strengthening of the US dollar after the Federal Reserve signalled continued tight monetary policy to curb inflation. In the short term, the baht may weaken on periodic war concerns and the US election in November, as well as the risk that the US may raise tariffs on imports from Thailand under Section 301. However, a sharp spike in oil prices is less likely, and Thailand's trade balance tends to improve late in the year, supported by August export figures that grew faster than expected. For the outlook in 2027, SCB estimates the baht will weaken again, reaching 33.80 per US dollar in the first quarter and possibly approaching 34.50 per US dollar in the third quarter before gradually strengthening slightly late in the year, given US government bond yields that are likely to hold at high levels and a Thai economy still recovering unevenly, or in a K-shaped recovery, relying mainly on electronics exports and the US market, while domestic consumption and the labour market recover slowly. These factors will likely lead the Monetary Policy Committee to hold the policy rate at 1.0%, keeping the interest rate differential between Thailand and other countries a pressure on the baht. Nevertheless, factors that could reverse and support the baht next year include the chance that the Fed may raise rates only once, fewer than the market's expectation of three times, as well as the risk that the US government may face a temporary shutdown and that the war situation may ease until oil prices return to normal levels. Wachiravat Banchuen, a senior financial markets strategist at SCB, added that long-term US government bond yields have surged to their highest in more than two decades, driven by high fiscal deficits, a wave of corporate bond issuance, especially by large technology companies raising funds for AI, and inflation concerns from the war. He estimates the yield curve will tend to steepen, with two-year bond yields possibly declining gradually to 4.15-4.35% by late 2027 in line with a slowing US economy, while 10-year bond yields will fall only limitedly and remain high at 4.70-4.90%. For the US presidential election, the base case assumes the Democratic Party will win a majority in at least one chamber, which would check the government's power and make new fiscal stimulus harder, reducing government spending and possibly helping push long-term bond yields somewhat lower. The probability of a Democrat Sweep is put at 55%, and the case of Democrats taking the lower house while Republicans hold the Senate at 35%. However, if a Republican Sweep occurs, with a probability of about 10%, it would be an upside risk that drives government bond yields and the dollar sharply higher on concerns over rising fiscal deficits. In addition, the euro has faced heavy selling pressure recently from high energy prices and political uncertainty, especially in France, where investors worry about a change of government next year that could affect public debt and the budget deficit. If the far-right or far-left wins the election, it would widen the spread between French and German bond yields and drag the euro lower, but if centrist parties retain power, it would reduce political risk and help the euro recover somewhat amid lingering fiscal challenges.
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