The baht surged to a four-year high, driving regional currencies to gain value, fueled by external factors like the weakening USD and internal dynamics unique to Thailand.
Since early 2025, the baht has strengthened by approximately 8% against the US dollar, marking its highest appreciation in four years and outperforming other regional currencies. When examining the baht’s exchange rate index (NEER), which compares its value against the currencies of trading partners and competitors, it shows the most significant appreciation since the 1997 Asian financial crisis.
This is due to several factors: (1) The dollar weakened quickly after President Trump took office for a second term; (2) The price of gold has continued to rise, hitting a new high, in line with geopolitical risks and as a safe asset, gold is starting to play a greater role than the US dollar. The relationship between the baht and gold prices is much higher than other regional currencies; and (3) Short-term factors: Capital is flowing back into the Thai bond market, while FX Hedging, a proportion of Thai foreign securities investments, has increased.
The strengthening baht has added further strain on Thai exports, compounded by the impact of Trump’s tariffs
The baht’s significant appreciation, contrary to Thailand’s low economic growth fundamentals, has transformed the baht from a shock absorber, supposed to mitigate the impact of economic shocks, into a shock amplifier, exerting additional pressure on the economy. This situation has further exacerbated Thai exports, which were already facing pressure from the US reciprocal tariff. Although Thailand was able to negotiate a US tariff rate of 19%, close to its regional competitors, the baht’s superior regional appreciation has actually weakened Thailand’s competitiveness. Compared to Vietnam and Malaysia, which face similar US tariffs, their currencies haven’t appreciated significantly. This has put pressure on the Thai export sector and the overall Thai economy. During this period of low economic growth and the risk of protectionist policies, Thailand’s competitiveness has been further eroded.
SCB EIC views businesses impacted by the strong baht as export-oriented and highly dependent on domestic production factors, as well as service businesses that rely heavily on foreign revenue.
The strengthening of the baht has different impacts on Thai businesses depending on their foreign income dependence structure.
1. Business groups that are highly–moderately negatively affected
– Export businesses that rely heavily on domestic production factors, such as agriculture and seafood (rubber, cassava, and shrimp), lose their competitiveness compared to competitors with weak currencies, and export revenues converted back to baht decrease.
– Tourism businesses (hotels and travel agencies) are at a disadvantage as foreign tourists perceive higher travel expenses in Thailand, especially when compared to countries with weak currencies, such as Japan.
2. Business groups that are least affected
– Businesses that rely on similar income and costs from abroad, such as processed food (canned tuna and ready-to-eat meals), automotive, electronics, petrochemicals, and services such as airlines and private hospitals, may experience a decrease in export revenue or foreign tourist revenue, but this is offset by lower import costs. Some industries also benefit from lower US dollar debt repayments in baht.
– This group of businesses can use natural hedging or restructuring production to reduce long-term exchange rate risk.
3. Business groups that have received positive benefits
– Businesses that rely on the domestic market but use a lot of imported raw materials, such as steel (imported hot rolled steel sheets), construction, real estate, and alcoholic beverages, benefit from lower import costs.
– The positive impact may be offset by intensified import competition and a slow recovery in domestic demand, particularly in the real estate sector.
Although the baht is unlikely to strengthen further in the future, uncertainty remains high. Entrepreneurs are advised to prioritize currency risk protection.
SCB FM estimates that the baht will not appreciate further in the near term, as the market has already priced in the US-Thai interest rate differential, reducing the pressure on the US dollar index to weaken further. Furthermore, the factors driving gold prices higher are becoming less pronounced, leading to a potential decline in gold demand. This means that gold demand may not accelerate as rapidly as in the past, and thus, the pressure on the baht to strengthen may not be substantial. The baht is projected to trade within a range of 31.50-32.00 baht per US dollar by the end of this year.
SCB FM recommends that entrepreneurs prioritize hedging against foreign exchange risk through FX forwards and may also consider FX options as an alternative. Recent declines in FX volatility have led to lower FX options costs. This may present an opportunity for entrepreneurs to hedge against currency risk, which remains highly uncertain in the future.
