The currency touched a three-year low today as anti- government protesters rallied on the streets of Bangkok to attract support ahead of a major demonstration planned for Dec 22. The main opposition Democrat Party will meet tomorrow to decide whether to boycott the general election on Feb 2. The Fed said this week it will cut its monthly bond purchases to US$75 billion in January from $85 billion previously.
“The depreciation in the baht was triggered by the Fed’s tapering,” said Kozo Hasegawa, a foreign-exchange trader at Sumitomo Mitsui Banking Corp in Bangkok. “In the short-term, the baht will remain under a gradual weaker bias. Thailand’s political uncertainty will probably make it hard for investors to buy Thai assets.”
The baht fell 1.8%t this week to 32.63 per dollar as of 3:38pm in Bangkok, according to data compiled by Bloomberg. That’s the most since the period ended Aug 23. The currency, which dropped 0.5% on Friday, touched 32.65 earlier, the weakest level since June 2010. It has lost 4.3% this quarter.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 15 basis points this week to 6.39%. The gauge increased seven basis points, or 0.07 percentage point, today.
The Fed will taper its bond buying in $10 billion increments over the next seven meetings before ending the program in December 2014, according to a Bloomberg survey of 41 economists yesterday.
The baht’s weakness is in line with the region after the Fed’s move while the central bank is prepared for any possible impact, Bank of Thailand spokeswoman Roong Mallikamas told reporters today. Political uncertainties may affect the currency, she added.
Capital is expected to flow out of Thailand because of the reduction in stimulus, Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, said in national television broadcast yesterday. Global funds pulled a net $178 million from Thai bonds and equities in the first four days of this week, official data show.
The yield on the 3.625% bonds due June 2023 rose one basis point this week to 4.04%, data compiled by Bloomberg show. The rate was little changed on Friday.