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Pound Fights Back on Hopes for Soft Brexit; Thai Baht at Long-Term Highs

Despite a crushing defeat for Prime Minister May’s Brexit deal on Tuesday night and a motion of no confidence tabled against the British government—which the government survived on Wednesday—the pound is close to multi-week highs. In emerging markets, the Thai baht remains an outperformer.

Posted Jan 16, 2019

The pound is higher this week despite a monumental failure of the British government to make a Brexit breakthrough.

Against the euro, Britain’s currency traded on Wednesday at a 7-week high of €1.13, and against the dollar, the pound bought $1.288—within 1.3 percent of a 9-week high.

Wednesday’s sterling exchange rates are reflective, one analyst said, of a “[perceived] move towards extending Article 50 and delaying Brexit” following this week’s drama, rather than, as some had feared, a move towards “no deal”; this, of course, is sterling positive.

In emerging markets, among the best performing currencies is the Thai baht, which is off to a flyer in 2019.

Midway through Wednesday’s US session, the baht was trading at its strongest level against the euro since April 2015, at ฿36.1 per EUR, and was worth more against the dollar than at any point in the last 10 months, at ฿31.7 per USD.

Paiboon Nalinthrangkurn, chairman of the Federation of Thai Capital Market Organisations, predicted earlier in January that the baht would appreciate over the medium to long term as capital flows return to Thailand and other emerging markets in the face of a more gradual rise in US interest rates and as the US economy wrestles with a trade spat-induced slowdown, which he predicts.

The baht has been well supported since the Bank of Thailand finally commenced with a process of monetary policy normalisation in December, in which the Bank raised its benchmark interest rate for the first time since 2011, from a near-record low.

Investors have, it seems, been unfazed by remarks from Thai officials shortly before Christmas which expressed a desire to maintain a relatively accommodative policy and to not raise Thai interest rates quickly or at a continuous rate.

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