Thai baht continued to strengthen against the greenback on Friday after gaining over 1.8% yesterday following the decline in the US dollar after the Federal Reserve announced rate cuts next year.
The baht has reached a two-week high at THB34.84 per one US dollar. It is on pace to the strongest level in more than four months if it continues to strengthen just slightly below this level.
Meanwhile, the Dollar Index, which is a basket of US dollars against major currencies in the world, extended loss to 101.91, which is the lowest level in more than four months.
The weakening dollar was the result of the U.S. Federal Reserve statement after the two-day meeting on Wednesday that pointed to three rate cuts next year.
Interest rates for the U.S. remained unchanged at a 22-year high of 5.25-5.50%, saying that economic growth has slowed since 3Q23. The Fed’s dot plot also showed that most officials see rate cuts in 2024 with a median projection of three.
The Fed mentioning of rate cuts came at a surprise to the market that expected the central bank to remain muted on future moves. Still, the Fed’s projection for rate cuts is still below market expectations by half.
The market expected to see about six cuts. The first cut could be as soon as March with a 70% chance, much higher than 30-50% prior to the meeting. There is also about a 20% chance that the Fed could cut interest rate by 25 basis points next month, according to CME FedWatch Tool.
Yesterday, the European Central Bank (ECB) and the Bank of England (BOE) left rates unchanged on Thursday, in line with market expectations.
Deposit rate for the ECB was maintained at 4.5% for the second meeting in a row as inflation showed signs of slowing down in the bloc. However, the ECB revised down average real GDP expanding 0.6% in 2023, a slight decline from a prior estimate of 0.7%. The meeting also cut 2024 GDP growth to 0.8% from 1%, previously. Growth for 2025 remained unchanged at 1.5%.
Expectations for average inflation in 2023 are at 5.4%, and forecast to drop to 2.7% and 2.1%, respectively in 2024 and 2025.
In addition, ECB President Christine Lagarde noted that the committee did not discuss rate cuts at all, but markets are pricing in a little more than five cuts next year.
Meanwhile, the BOE also left its bank rate unchanged at 5.25% on Thursday as well, which was in line with expectations. As inflation remained high at 4.6% in October, UK money markets pushed back BOE’s first rate cut from May to June 2024.
