The baht could slide further to below 34.5 to the dollar in the short term after the currency fell to a two-month low on Thursday, as the market now expects the Federal Reserve to cut interest rates slower than expected after Donald Trump won the US election, says Kasikorn Research Center (K-Research).
The baht was quoted at 34.34-36 to the greenback on Thursday, a fall from Wednesday's close of 34.17, which was dragged down by the continuous decline of the yuan.
Other currencies, including the yen, also fell against the dollar, which strengthened significantly after Trump claimed victory in the Nov 5 election.
"The baht depreciated and there are signs that funds will continue to flow out of the Thai bond market," Kanjana Chockpisansin, head of research, banking and the financial sector at the think tank told the Bangkok Post.
"The US bond yield rose as Trump is expected to spend a lot to stimulate the economy, and the new administration might have to issue bonds to finance massive spending."
The dollar has gained as investors have bought the US currency after they scaled back expectations for the Fed's interest rate cuts.
The market previously expected the US central bank to cut the policy rate by another 1 percentage point by the end of next year, following a 50-basis-point (bps) reduction in September.
"We expect the Fed to trim the rate by another 25bps at its meeting this week and clearly state after the meeting further cuts depend on economic conditions. If so, it is possible the baht could slip to a range of 34.70-80 to the dollar," said Ms Kanjana.
Rakpong Chaisuparakul, senior vice-president of KGI Securities (Thailand), said short-term depreciation is possible as Trump trades begin.
But after the excitement of Trump winning the election fades, markets could return to US fundamentals, focusing on a slowing economy and further interest rate cuts, he said.
The Fed fund futures now predict the central bank will lower the policy rate to 4.50% by the end of 2024, with cuts of only 50bps in 2025 to end the cycle at 4.00%.
However, KGI economists have maintained a baseline view for a 100bps reduction in 2025 as the US is likely to enter a cyclical slowdown or soft landing next year, said Mr Rakpong.