Thai Baht Weakens Against Dollar Amid Global Trade Tensions and Domestic Challenges

The Thai baht (THB) edged lower against the US dollar (USD) on April 28, 2025, closing at ฿33.55/USD, a slight dip from the previous week. This decline reflects a broader trend of weakness driven by global trade tensions, Federal Reserve policies, and Thailand’s domestic economic vulnerabilities. While the currency showed temporary stability, underlying pressures suggest further volatility ahead.

Key Drivers of the Baht’s Decline

1. US Tariffs and Trade Policy Uncertainty

The baht’s struggles are deeply tied to escalating US trade policies. In February 2025, the US imposed a 36% effective tariff on Thai imports—higher than regional peers—after removing exemptions on aluminum and steel. These measures, part of President Trump’s “Trump 2.0” agenda, triggered immediate volatility. Within days, the baht dropped to a three-month low of ฿34.15/USD, reflecting heightened trade risks. Analysts at SCB Financial Markets warn that unresolved negotiations could push the currency toward ฿34.50/USD in the short term.

2. Federal Reserve’s Delayed Rate Cuts

The Fed’s hesitation to cut rates due to inflationary pressures—partly fueled by tariff-driven supply chain disruptions—has bolstered the USD. A stronger greenback exerts downward pressure on the baht. SCB EIC projections suggest the Fed may hold rates through mid-2025, prolonging the baht’s weakness.

3. Thailand’s Domestic Economic Struggles

• Sluggish Growth: Thailand’s economy grew just 2.8% in 2024, hindered by political instability and weak private investment. Over 60% of consumers anticipate further economic deterioration in 2025, according to SCB surveys.
• Household Debt: With household debt at 83% of GDP, deteriorating loan quality and tight credit standards have stifled consumption. The central bank’s February 2025 rate cut to 2% offered limited relief amid broader headwinds.
• Export Challenges: Over 70% of Thai exports to the US fall into sectors targeted by tariffs, such as electronics and automobiles. Competition from cheaper Chinese imports has further strained manufacturers.

4. Geopolitical Risks and Capital Outflows

Global investors are shifting toward safe-haven assets amid geopolitical tensions, exacerbating capital flight from emerging markets like Thailand. SCB FM estimates that dividend repatriation by foreign firms could weaken the baht to ฿34.15–34.65/USD in the coming months.

Outlook and Risks

Analysts project the baht to remain in a ฿34.00–35.00/USD range through late 2025, with risks skewed to the downside. A key turning point hinges on US trade policy:
- Optimistic Scenario: If tariffs are reduced or exemptions reinstated, the baht could rebound to ฿32.50–33.50/USD by year-end.
- Pessimistic Scenario: Escalating trade wars or a US recession could push the baht to ฿35.50/USD by early 2026.

Investment Implications

• Currency Hedging: Businesses exposed to USD revenue should use FX forwards to mitigate volatility.
• Equity Market Caution: Thai equities, particularly export-reliant sectors like automotive and electronics, face earnings pressure.
• Bond Market Opportunities: The baht’s weakness may attract carry traders to Thai government bonds, though geopolitical risks temper appeal.

Conclusion

The Thai baht’s decline reflects a perfect storm of external pressures and domestic fragilities. With tariffs, Fed policy, and capital flows dominating the outlook, investors must remain vigilant. While a resolution to trade disputes could stabilize the currency, the path to recovery hinges on global cooperation and Thailand’s ability to address structural economic challenges. As of April 28, 2025, the baht’s trajectory remains fragile—investors should prepare for prolonged volatility and prioritize hedging strategies.