Thai baht caught in international currency crosshairs

The Thai baht is being pulled in opposite directions by factors outside its control.

The cost of a foreign holiday in Thailand now depends increasingly on the currency you wish to exchange. The US dollar continues to rise on the back of Federal Reserve hawkish interest hikes and investors’ preference for the greenback during a time of general instability in world affairs. One dollar is now worth nearly 38 baht. Kasikornbank Research says there isn’t much the Bank of Thailand can do to stem the rise of the dollar, which is hiking the cost of foreign imports and fuelling Thai domestic inflation. However, the rise in foreign tourist arrivals and the increase in Thai exports should bring an improvement later in the year. CIMB Thai Bank points to a likely rise in GDP (gross domestic product) of 3.2 percent for the whole of 2022.

Meanwhile, the British pound is in headlong retreat against all major currencies including the Thai baht. Thai exchange bureaux are currently offering barely 40 baht for one UK pound, compared with 42 just weeks ago. The British chancellor, Kwasi Kwarteng, has introduced a massive tax-cutting budget (mainly benefitting the rich) to kickstart a dash for economic growth. But the Institute of Fiscal Studies warns the UK will need to borrow an extra 72 billion pounds at a time of high inflation everywhere. The independent Bank of England could well raise interest rates substantially to dampen inflation, but this would have the effect of making mortgages and other borrowing more expensive in a continuing inflationary spiral.

International financial gurus such as Bloomberg say it’s currently very difficult to predict currency movements. For example, a Russian withdrawal from Ukraine, however unlikely, would immediately have a reducing effect on international oil and gas prices. Thus the British pound would be boosted in spite of the recent budget. As regards the US dollar, some speculators argue that the greenback’s share of the world’s foreign exchange reserves continues to fall even as the rise of crypto-currencies poses a threat to traditional theories. As physicist Stephen Hawking hinted, “The only way to predict the future is to invent it yourself.”