Anti-government demonstrators have been calling for the military to back their bid to oust caretaker Prime Minister Yingluck Shinawatra's government and set up an unelected council tasked with erasing her family's political influence.
"The army is at a difficult crossroad,'' army chief Gen Prayuth Chan-ocha said at a Dec 27 briefing. Three people were killed and more than 150 injured last week amid protests and rioting in Bangkok.
The baht dropped 0.3% to 32.95 per dollar as of 12.41pm in Singapore (11.41am Thailand time), according to prices compiled by Bloomberg, and earlier touched 32.96, the lowest level since June 2010.
The currency has lost 7.2% this year, its worst annual performance since 2000. Onshore financial markets are closed for holidays through Jan 1.
"The baht can still depreciate further because it doesn't seem like the political problems will be going away anytime soon," said Leo Chan, head of regional foreign-exchange and interest-rate trading in Hong Kong at ABN Amro Bank NV. "The army could step in. As we have seen in the past, this will resolve itself peacefully but the baht could weaken some more before we eventually see that."
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell two basis points, or 0.02 percentage point, to 6.56%.
The measure has risen 75 basis points since Oct 31, when Ms Yingluck's opponents began street demonstrations accusing her of economic mismanagement and seeking to introduce a law that would exonerate her brother Thaksin, who was ousted as premier in a 2006 military coup and later convicted of abuse of political power. She dissolved parliament on Dec 9.
Thaksin is accused of controlling the government from overseas, through his young sister.
Global funds sold US$1.26 billion more Thai shares than they bought this month as Ms Yingluck's move to call for a snap election sparked street protests and the Election Commission urged the government to delay the Feb 2 poll.