The baht could weaken to around 37.20 baht to the US dollar later this week from its six-month low of 36.9 baht on Monday due to continuing concerns over the conflict in the Middle East, while US economic figures due this week are likely to support dollar strength, says Kasikorn Research Centre (K-Research).
The Thai currency was quoted at 36.97 baht to the greenback, the lowest in six months, in early morning trade on Monday before bouncing back to 36.94-96, compared with Friday's close of 36.86, influenced by cooling global gold prices and movements of the Chinese yuan and Japanese yen.
The dollar, which is considered to be the safest currency, has gained in strength amid the ongoing tensions in the Middle East and the likelihood that the Federal Reserve will not rush to cut interest rates as the US economy continues to perform well.
"Both the ongoing Middle East conflict and the strong dollar have influence on the baht, which has depreciated 7.6% this year to date," said Kanjana Chockpisansin, head of the research, banking and financial sector at K-Research.
The Thai currency is the second weakest in the region after the yen, which has fallen 8.8% year to date. The South Korean won, meanwhile, has depreciated 6.4% so far this year, according to K-Research.
Comments from Fed officials and hotter-than-anticipated inflation data last week led to markets scaling back expectations for rate cuts in the US and other developed economies. The US is due to release first-quarter GDP figures on Thursday and the core Personal Consumption Expenditure price index, which is known for capturing inflation, on Friday.
"If those US economic indicators beat the market's forecast, then they enhance the probability that the Fed would hold the rates higher for longer. As a result, the dollar would gain more strength and pressure the baht to depreciate further," Ms Kanjana told the Bangkok Post.
So far, K-Research has maintained the same view as Kasikornbank that the US central bank would lower rates on at least two occasions this year, she added.
Coupled with its expectation that the concerns over geopolitics are unlikely to go away quickly, Ms Kanjana noted that K-Research expects the baht to move in a range of 36.70 to 37.20 baht to the dollar this week.