Global Inflation Hurt Thai Baht, South Korean Won

The Thai baht and the South Korean won are among the Asian currencies adversely affected by global inflation’s indicators. This event is ongoing as the US dollar gains strength.

We find this foreign exchange-related report important for our readers to know today as the trading week begins. We believe it can impact them tremendously, especially if they hold units of the Thai baht and the South Korean won and intend to exchange it with the US dollar.

According to the update posted online by business and politics journal Nikkei Asia, investors are retreating from the Asian region and decided to reduce their exposure to Asian currencies, including the Thai baht and the South Korean won. This event comes amid concerns about the signs of global inflation.

Additionally, investors were reportedly reacting to other concerns like the soaring commodity prices and China’s economic slowdown. These happenings occur as the US dollar amass strength, supported by the anticipation that the US Federal Reserve System is probably preparing to raise interest rates as soon as 2022 while the COVID-19 pandemic wanes. 

Last week, the ten-year US Treasury yield hit its highest level since the middle of May. Some market participants forecast it has further to surge this year, especially if the US central bank accelerates its monetary tightening in the face of higher inflation. 

The expectation involving the Fed has caused tremors across Asian currencies, including the Thai baht and the South Korean won. These two currencies are viewed as among the worst performers in the region at the time of writing. 

For the past few weeks, Thailand and South Korea’s currencies have been choppy. They have remained sharply lower as well, compared with 2021’s beginning. 

The South Korean won is down 8 percent year-to-date, and it plummeted to its lowest point in over a year this month. This event prompted the South Korean central bank to intervene. 

Meanwhile, the Thai baht has sunk more than 10 percent. Ken Cheung explained that a sooner-than-anticipated US rate hike amid a mounting international inflationary pressure had been the primary concern surrounding Asian currencies.

Mizuho Bank’s chief Asian foreign exchange strategist in Hong Kong added that this factor had prompted some countries to begin moving toward normalizing monetary policy to manage inflationary pressures. 

Motoki Maruyama remarked that they at Mitsubishi UFJ Financial Group believe Asian currencies, including the Thai baht and the South Korean won, could remain vulnerable in the foreseeable future. 

The Mitsubishi bank’s head of foreign exchange and rates trading in the Americas cited that nations with less favorable current account balances would be at a disadvantage in navigating macroeconomic trends amid the post-pandemic recovery of business activities and the energy price surge.

We feel dismal for traders and consumers affected by the current events involving the Thai baht and the South Korean won. We think these currencies’ values will be low vis-a-vis the US dollar because of many factors mentioned by the foreign exchange analysts.

Among them are the soaring fuel costs, growth scares, inflation and spike in consumer price indexes, rising crude oil, coal, and natural gas, all of which upset the foreign exchange market and pressure the Thai baht and the South Korean won, as well as the other Asian currencies.

We also believe that the low vaccination rate in Southeast Asia adversely impacts the Thai baht. The uncertainties in post-COVID-19 growth and the potential resurgence of the coronavirus could keep Asian currencies low, even if the nations move to reopen borders and relax the health protocols. 

We recommend our readers exchanging their units of the Thai baht and the South Korean won with the US dollar to determine first if the current foreign exchange scene is favorable for them. We also advise them to learn how forex works. In this way, they can understand how to properly react if the events in the foreign exchange sector are not in their favor. 

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