Baht may continue to weaken, possibly dipping below 34.5 to the dollar, following its drop to a two-month low on Thursday. Kasikorn Research Center (K-Research) suggests the recent baht depreciation is likely tied to expectations that the Federal Reserve will slow down its rate cuts after Donald Trump’s election win.

On Thursday, the baht traded at 34.34-36 per dollar, down from 34.17 on Wednesday. The drop was influenced by the yuan’s continued slide and a broad dollar rally after Trump’s Nov. 5 election victory. Other currencies, such as the yen, also declined against the strengthening dollar.

Kanjana Chockpisansin, head of research at K-Research, noted that funds are moving out of the Thai bond market amid the baht’s depreciation. She explained that U.S. bond yields rose as investors expect increased economic spending under Trump’s administration, which may require new bond issuances.

The dollar’s surge reflects investor demand, driven by adjusted expectations for Fed rate cuts. The market initially anticipated a 1% reduction in the Fed’s rate by the end of next year, following a 50-basis-point (bps) cut in September.

Kanjana added that the Fed is likely to reduce rates by another 25bps this week and could signal that further cuts will depend on economic indicators. If so, the baht may fall to the 34.70-80 range per dollar.

Rakpong Chaisuparakul, senior VP of KGI Securities (Thailand), stated that short-term baht depreciation could continue as market reactions to Trump’s win unfold. However, as the initial excitement fades, investors might refocus on U.S. fundamentals, including an economic slowdown and further rate cuts.

Fed fund futures now anticipate the policy rate dropping to 4.5% by the end of 2024, with limited cuts in 2025 bringing it to 4.0%. However, KGI economists hold a baseline forecast of a 100bps reduction in 2025, expecting a cyclical slowdown or soft landing for the U.S. economy next year, Rakpong said.