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US Dollar to Fall This Week; Thai Baht Under Threat Following Huge GDP Miss

The US dollar slipped last week and is likely to do so again heading into Thursday’s US Thanksgiving holiday. Like the dollar, the Thai baht might weaken once traders have fully digested Monday’s hugely disappointing economic data.


Having weakened from 5-month highs last week, the US dollar is expected to fall again in the lead-up to Thursday’s US Thanksgiving holiday, per ING’s Chris Turner.

By the end of last Friday’s New York session, the US Dollar Index—a measure of the greenback’s performance against a basket of currencies—had slipped 1.3 percent from Monday’s high of 97.69, to 96.43. A further 1-2 percent decline is on the cards for this week, Turner believes.

Turner points to last week’s 15-basis-point reduction in 2-year dollar swap rates, indicative, he says, of “a correction to the prevailing trend of another Fed hike in December and three more through the first three quarters of 2019.”

A downward revision to US interest rate expectations shouldn’t be ruled out now that Fed decision makers are alluding to the global environment’s effects on the US economy and potential monetary policy. One only has to look to developments in Europe last week to find a source of major global uncertainty.

A market that is perhaps overly long dollars provides an incentive to “favour dollar weakness . . . more against the high yielders [and] emerging market FX than against the low-yielding euro and Japanese yen,” Turner says.

USD to THB - 3 month chart to 19 Nov
USD/THB - 3 month chart to 19 Nov

In Thailand, Monday morning’s shocking miss in third-quarter GDP data is reason enough to get bearish on Thailand’s currency.

Per the median estimate of economists, economic growth had been expected on an annualized basis at 4.2 percent for the year to September 30th, with pessimistic forecasts nearer 3.7 percent. Investors will have been shaken, therefore, with a print of only 3.3 percent. Growth in the year to June 30th had been 4.6 percent.

Monday’s data will surely reduce the Bank of Thailand’s appetite for higher interest rates, which remain extremely low, at just 1.5 percent, and lower rates for longer would add pressure onto the Thai baht, which is already among Asia’s worst performing currencies since October 1st.

For the baht, a move by year-end into the high 33s per dollar, from Monday afternoon’s live rate of 32.95, shouldn’t be ruled out.

 

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