Bangkok Battles Economic Headwinds: Baht Under Pressure
The Thai baht, initially bolstered by rising gold prices earlier this year, now faces an uncertain future. Strategists warn that gold’s price alone may not protect it from looming economic challenges. While the baht outperformed many Asian counterparts in 2025, appreciating approximately 1.2% against the US dollar, experts predict a downturn driven by interest rate differentials and the threat of trade tariffs.
Thailand’s status as a gold trading hub creates a strong correlation between the baht and gold prices. As gold reached record highs, so did the baht. Bloomberg calculations show a 0.57 correlation coefficient between the two over the past five years (using weekly data), indicating a significant, though imperfect, relationship. A coefficient of 1 would represent a perfect correlation.
However, this gold-linked support may prove insufficient. The Bank of Thailand’s February decision to cut its policy rate to 2% created a substantial 250-basis-point difference with the upper bound of the US Federal Reserve’s benchmark rate. This interest rate differential makes the baht less attractive to investors seeking higher returns, potentially causing capital outflow and weakening the currency. This is a common phenomenon in international finance, where investors gravitate toward higher yields.
Further pressure stems from the ongoing threat of reciprocal US tariffs, casting a long shadow over the Thai economy. This vulnerability, combined with the widening interest rate gap, has led analysts to adopt a bearish outlook on the baht. Stephen Chiu, Chief Asian Foreign-Exchange and Rates Strategist at Bloomberg Intelligence, predicts the baht’s current outperformance will eventually fade as lower-yielding currencies struggle against a potential US dollar resurgence.
This bearish sentiment is echoed by major financial institutions. A March 7 Goldman Sachs report projected the baht weakening to 35 per dollar within three months, and further depreciating to 36 within a year. Economists at Bank of America Corp. also highlighted increasing downside risks for the Thai currency.
On Tuesday, the baht fell 0.3% against the US dollar, trading at 33.89. While the recent US dollar weakness offered temporary relief, Alvin Tan, a strategist at RBC Capital Markets in Singapore, emphasizes Thailand’s tariff vulnerability. He forecasts the dollar/baht exchange rate to fluctuate between 32 and 37 throughout 2025.
The baht’s future trajectory depends on several factors: gold market performance, the evolving US-Thailand trade relationship, and the monetary policies of both countries. While the baht’s gold connection has offered some support, significant economic headwinds suggest a challenging outlook.
