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Pound to Baht Rate Hits All-Time Low, as Baht Safe Haven

Market CommentaryPound to Baht Rate Hits All-Time Low, as Baht Safe Haven
Pound to Baht Rate Hits All-Time Low, as Baht Safe Haven
Pound to Baht.

The pound to baht interbank exchange rate stands at 37.33 today at the time of writing. This is just a fraction above sterling’s all-time low versus the baht.

To express this in Thai baht to sterling terms, the THB to GBP interbank exchange rate is currently 0.0286. Since the start of 2019, the baht has risen by +17.69%.

This could benefit you, if you’re a Briton selling property abroad in Thailand, you’re transferring money to the UK to your family, or you’re a Thai business owner importing British products.

This is because, when you exchange Thai baht to pounds, you could get a higher sterling total in your UK bank account, compared to when you’ve bought pounds any time in the past.

In turn, this could make it more profitable for you to repatriate the funds from your Thai property sale to the UK, or cut your international payments costs to ship British goods to Thailand.

To keep up-to-date with the pound to baht, or baht to pound, interbank exchange rates, visit Pure FX’s Rates & Tools page. Here, select ‘GBP’ to ‘THB’, or alternatively, ‘THB’ to ‘GBP’.

Also, to see what’s affecting the pound to baht interbank exchange rate recently, visit our GBP to THB Exchange Rate Updates page. Here, click on the latest article to see the recent news.

A first reason why the Thai baht to pound interbank exchange rate has reached this all-time high is because the baht has emerged as a safe haven from the USA’s and China’s trade war.

A second reason why the baht has strengthened versus British sterling is because the financial markets increasingly think that the UK will exit the EU without a deal by October 31st.

However, looking forward, the value of the baht could be affected, because the Bank of Thailand unexpectedly cut interest rates for the first time since 2015 yesterday, by -0.25% to 1.5%.

Please find below a further explanation of why the Thai baht to pound interbank exchange rate has risen. You might find this information useful, for when you transfer money to the UK.

Baht to Pound Rises, as Thailand Emerges as Safe Haven from Trade War

As I mention, a first reason why the baht to pound interbank exchange rate has reached this all-time high of 0.0286 is because Thailand has emerged as a “safe haven” from the USA’s and China’s continuing trade war.

This is encouraging the world’s money managers to buy Thai-denominated assets, to protect themselves from Washington and Beijing’s dispute, lifting the baht, reports trusted financial news source Bloomberg.

When we say that a country or currency is a “safe haven”, we mean that it’s a refuge from political or economic turmoil elsewhere in the world.

Normally, when there’s global unrest, we’d expect the world’s largest, most secure and reliable currencies to strengthen, as investors feel comfortable parking their money there. Typically, the Swiss franc and Japanese yen are the main “havens”.

However, recently the Thai baht has emerged as a safe haven currency from the USA’s and China’s trade war, ahead of more-developed regional neighbours like the Singapore dollar, Taiwanese dollar or Korean won.

This is because, unlike Singapore, Taiwan or Korea, Thailand’s economy is relatively insulated from the global supply chain, so stands to resist the trade dispute better, according to the Bangkok Post newspaper.

To explain, since last year US President Donald Trump and Chinese Premier Xi Jinping have been involved in a trade dispute, imposing increasingly large tariffs on each other’s countries.

The USA and China are the world’s two largest economies, so their trade war has affected other economies around the world, ranging from Germany’s car industry to New Zealand’s commodity prices.

The thing is though, because Thailand remains an emerging market economy, it’s relatively insulated from the effects of the trade war, compared to other Asian economies like Singapore.

So even though Thailand’s GDP is lower then Singapore’s or Korea’s, the baht has emerged as a “safe haven” from the trade war, because Thailand’s economy is less affected by the dispute.

For instance, Jitipol Puksamatanan, Chief Strategist at Krung Thai Bank Pcl said recently that: “Thai baht remains a safe haven as we haven’t had significant impact from the worsening trade war like other emerging markets."

Meanwhile, Sim Moh Siong, a currency strategist at Bank of Singapore, said that Thailand is “not in the direct line of fire in terms of the supply chain impact”. So this has boosted the baht.

Baht Strengthens Versus Sterling, as ‘No Deal’ Brexit Odds Continue to Rise

In addition, another factor why the baht to pound interbank exchange rate has reached this all-time high is because the odds that the UK will exit the EU without a deal continue to rise.

At present, traders pencil in a 38% probability that there’ll be a ‘No Deal Brexit, by the extended deadline of October 31st. This is up from a 10% chance a few months ago, in February.

It looks increasingly likely that there’ll be a ‘No Deal’ Brexit, because Prime Minister Boris Johnson’s new government is putting its energy into ensuring that the UK exits the EU by Halloween, come what may.

In particular, Mr. Johnson’s Special Advisor, Dominic Cummings, has warned civil servants that they face the sack if they’re not working flat out to prepare for Brexit, according to The Guardian newspaper.

Moreover, Mr. Cummings has said that the Prime Minister can achieve a ‘No Deal’ Brexit, even if Parliament votes down his government in a vote of ‘No Confidence’.

This is because, according to the legislation, if a Prime Minister loses a vote of ‘No Confidence’, it technically doesn’t say that he has to resign. So Mr. Johnson could stay on, to ensure that the UK leaves the EU.

However, though the Special Advisor’s remarks demonstrate that the UK government is serious about a ‘No Deal’ Brexit, they’ve simultaneously increased tensions at Westminster.

This is because, first, if Mr. Johnson stays on as Prime Minister after losing a vote of ‘No Confidence’, it would break a centuries-old convention. This could prompt a British constitutional crisis.

Second, Mr. Johnson’s government is determined to achieve Brexit by October 31st, even though a majority of MPs in the House of Commons oppose a ‘No Deal’ Brexit.

As a result, many MPs are creating plans to stop the Prime Minister taking the UK out of the EU without a deal. These include setting up an alternative “government of national unity”, to extend the Brexit deadline, reports the Financial Times newspaper.

In spite of MPs efforts though, the fact remains that the UK’s default legal position is that we’ll exit the EU, with or without a deal, on October 31st. So really, all the Prime Minister has to do is do nothing for the next three months, and he’ll achieve a ‘No Deal’ Brexit.

Investors are aware of this increasing possibility, which has contributed to weaken the value of sterling. For example, Derek Halpenny at MUFG said recently that:

"We now consider leaving the EU without a deal as the most likely scenario and hence have lowered our GBP forecast levels accordingly. Parliament [may force] a general election but then the Conservatives and the Brexit Party winning is our likeliest scenario.”

This is to say, the markets are increasingly facing up to a ‘No Deal’, thereby weighing on the pound.

Baht to Pound Rate Could Be Affected, as Bank of Thailand Cuts Interest Rates

However, looking forward, the Thai baht to pound interbank exchange rate could be influenced, because yesterday the Bank of Thailand (BoT), the Kingdom’s central bank, unexpectedly cut interest rates.

Typically, this weakens the value of the baht, because it reduces the return on investment that the world’s money managers can expect for placing funds in Thai assets.

This Wednesday 7th August 2019, the BoT surprisingly cut interest rates by -0.25%, to 1.50%. This was Thailand’s central bank’s first interest rate cut in over four years, since 2015, reports the Financial Times newspaper.

The BoT’s decision yesterday reverses its recent increase in interest rates, up to 1.75%, back in December last year. That decision was Thailand’s central bank’s first interest rate increase in eight years.

Of the BoT’s seven-member Monetary Policy Committee (MPC), five members voted to reduce Thailand’s borrowing costs, while two voted to keep rates steady.

The central bank’s decision on Wednesday surprised the financial markets, who’d widely expected the BoT to hold rates at 1.75%. For instance, 25 out of 27 economists in a Bloomberg poll forecast that the BoT would hold.

The Bank of Thailand cut interest rates for several reasons. First, the BoT said that it’s worried about the increasing strength of the baht. So far this year, the baht has gained value well beyond other Asian currencies, like the Taiwanese dollar or Korean won.

As I mention above, this is in part because Thailand’s economy is relatively insulated from the USA’s and China’s trade war.

However, Thailand’s central bank has noticed that the baht’s strength is now starting to weaken Thailand’s economy.

In the BoT’s statement accompanying its decision, it said that tourist visits to Thailand stagnated in the first half of 2019, while exports have fallen by -4.1%. This is because a stronger baht makes visiting Thailand on holiday, or buying Thai products, more expensive.

Furthermore, the BoT said that, what with Thailand’s tourist industry and exports slowing, there’s a risk that Thailand’s economic growth and inflation might rise below predictions this year.

To compensate for this, the central bank cut interest rates, to make taking out loans in Thailand cheaper. This will encourage Thai businesses and shoppers to spend more, thereby stimulating growth.

In addition, the central bank added that it could cut interest rates again, to further compensate for the strong baht. Looking ahead, this could affect the value of the baht against the pound too.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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