Thai Baht Faces Persistent Depreciation Pressures Amid Global Trade Tensions and Domestic Challenges

On May 7, 2025, the Thai baht (THB) edged higher against the U.S. dollar (USD), reaching 0.0297 USD/THB—a marginal 0.34% increase from the prior day’s 0.0296 USD/THB. While this slight appreciation might suggest temporary stability, the broader context reveals a currency under severe strain. Analysts warn that Thailand’s economic vulnerabilities, global trade wars, and structural challenges are pushing the baht toward deeper depreciation.

The Contradiction: A Momentary Uptick in a Weakening Trend

The May 7 appreciation appears counterintuitive given the baht’s 2025 trajectory. Year-to-date data shows the baht’s average rate of 0.02949 USD/THB—a 2.51% annual rise in the THB/USD rate, reflecting gradual appreciation. However, this masks deeper risks. The baht’s highest rate in 2025 (0.03029 USD on April 21) and lowest (0.02866 USD on April 8) underscore extreme volatility, with May 7’s uptick merely a pause in a broader downward spiral.

Catalysts Driving Depreciation: A Perfect Storm

1. U.S. Tariffs: The Elephant in the Room

The U.S. imposition of 37% tariffs on Thai exports—far exceeding initial expectations—has crippled Thailand’s trade balance. These tariffs, targeting sectors like agriculture and energy, have slashed export competitiveness. Thailand’s exports to the U.S. fell by 18% year-on-year in Q1 2025, with analysts at Kasikorn Research estimating a 1.2% hit to GDP growth in 2025. The IMF now forecasts Thailand’s growth at just 1.8% for 2025, down from pre-tariff projections of 2.3%.

2. Fed Policy and Dollar Strength

The Federal Reserve’s delayed rate cuts—despite easing inflation—have bolstered the U.S. dollar. A stronger dollar typically weakens emerging-market currencies like the baht. Krungthai Global Markets noted that Thailand’s central bank is “caught between a rock and a hard place,” unable to lower interest rates to stimulate growth without risking capital flight.

3. China’s Economic Slowdown

Thailand’s reliance on China as its top trading partner has amplified risks. China’s Q1 2025 GDP growth slowed to 4.5%, down from 5.2% in 2024. Reduced Chinese demand for Thai goods—from electronics to agricultural products—has cut export revenues, further straining the baht.

4. Thailand’s Structural Weaknesses

The IMF has identified four “growth traps” stifling Thailand’s economy:
- High household debt: At 89% of GDP, this limits consumer spending.
- Overdependence on tourism: Post-pandemic recovery remains sluggish, with tourism contributing just 7% of GDP in Q1 2025—well below pre-pandemic levels.
- Aging population: A workforce decline is projected to reduce GDP growth by 0.5% annually by 2030.
- Underinvestment in infrastructure: Public investment lags behind regional peers, hindering productivity.

Market Sentiment and Speculation

Investor pessimism is palpable. KResearch’s May 2025 report warns of the baht weakening to 35.50 THB/USD by year-end—a 4.3% decline from May’s rate. Such projections have fueled short-term speculative selling, with traders betting on further depreciation. Meanwhile, Thailand’s foreign exchange reserves, at $86 billion in April 2025, are insufficient to defend the baht indefinitely against sustained capital outflows.

Conclusion: The Baht’s Fragile Balance

While the May 7 uptick offers fleeting relief, the Thai baht remains in a precarious position. The combination of U.S. tariffs, Fed policy, China’s slowdown, and domestic structural flaws creates a perfect storm. Key data points underscore the risks:
- Trade deficit: Thailand’s Q1 2025 trade deficit widened to $1.2 billion, up from $0.8 billion in 2024.
- Foreign portfolio outflows: Net outflows reached $1.8 billion in the first quarter of 2025, signaling investor distrust.
- Year-end projections: KResearch’s 35.50 THB/USD forecast implies depreciation pressures will intensify unless Thailand secures tariff relief or implements reforms to boost productivity and diversify trade.

Investors should brace for volatility. Short-term traders might capitalize on the baht’s dips, but long-term stability requires structural fixes. Until then, the baht’s path remains downhill.