The Bank of Thailand has warned that the baht currency is likely to remain volatile due to external factors, as global financial market conditions remain uncertain. According to the central bank, the baht and other regional currencies have been moving in both directions in accordance with global financial market conditions, primarily due to uncertainty over the U.S. monetary policy and the recovery of China’s economy after its reopening.
U.S. Federal Reserve Chair Jerome Powell recently struck an unexpectedly hawkish tone, which strengthened the dollar, causing other currencies and the baht to weaken. On Wednesday, the baht fell by 1.4% against the dollar, reaching a one-week low. The central bank has also revealed that foreign investors have been net sellers of about $2 billion of Thai assets so far this year.
Reasons behind baht currency weakness
The recent volatility in the baht currency can be attributed to several external factors. Firstly, the ongoing uncertainty over the U.S. monetary policy has been causing fluctuations in global financial markets. The U.S. Federal Reserve’s decisions on interest rates and monetary policy have a significant impact on other currencies around the world, including the baht.
Secondly, the recovery of China’s economy after its reopening has also been affecting the baht currency. China is a major trading partner of Thailand, and any fluctuations in its economy can have a significant impact on the baht. With China’s economy still in a state of flux, the baht is likely to remain volatile for the time being.
Hedging against currency risks
Given the high level of volatility in the baht currency, the Bank of Thailand has advised the private sector to hedge against currency risks to mitigate any adverse impacts on their finances. Hedging involves taking measures to reduce the potential losses that may occur due to changes in the exchange rates of different currencies.
One effective way for businesses to hedge against currency risks is to enter into hedging contracts with financial institutions. These contracts allow businesses to lock in a fixed exchange rate for a certain period of time, reducing their exposure to currency fluctuations.
Another way to hedge against currency risks is to diversify investments across different currencies. By spreading their investments across multiple currencies, businesses can reduce their exposure to any one currency and minimize their risk of losses due to fluctuations in exchange rates.
In addition to these measures, businesses should also monitor global financial market conditions closely and stay informed about any developments that may affect the baht currency.
In conclusion, the baht currency is likely to remain volatile due to external factors such as uncertainty over the U.S. monetary policy and the recovery of China’s economy. Private sector players should hedge against currency risks to minimize any potential losses and stay informed about global financial market conditions to make informed investment decisions. By taking these steps, businesses can navigate the high levels of volatility in the baht currency and ensure their financial stability in the long run.