Why the Strong Dollar and Pound Won’t Last

Why the Strong Dollar and Pound Won’t Last

I haven’t chimed in about the strength of the Thai baht in almost 2 months and in that time we have actually seen a bit of retreat in the value of the Thai baht. We are now seeing the U.S. Dollar at over 31:1 against the baht and the Pound Sterling over 49:1. Does this mean that we can hope to enjoy some respite from the weakening currencies over the course of the coming year?

I honestly think that this strengthening of Western currencies is a blip and the normal downward trend will soon re-emerge. I truly wish that weren’t the case as I would be a very happy man if I was getting 35+ baht to the Dollar once again, but I think this current baht weakening is a short lived affair.

What we’ve been seeing is the result of some profit taking in the SET. Over the past 2 years investors in the SET have seen their investments gain close to 170% and now that they are seeing the market as fully valued they are beginning to pull their money and profits out of Thailand and moving on to greener pastures. This capital flight causes some weakening of the baht in the short term as investors sell baht to convert back to dollars, pounds and euro’s.

Long term though there is no way the baht can do anything but become stronger. Western monetary policy is sure to keep interest rates low in the west and keep currencies weak by design. A side effect of the increasing money supply in the West is the increase in inflation throughout the world as the newly printed dollars, pounds and euro’s seek out higher returns than can be had in their home countries.

Thailand has seen this effect first hand as inflation continues to heat up, mostly thanks to the incoming capital flows, not due to any internal pressures. Now that profits have been made some of this inflation should be released, which is good news for everyone in Thailand as prices have been increasing on many goods and services, squeezing the consumer somewhat.

So, enjoy this short respite while your pounds and dollars get you slightly more baht. The tide will soon turn and the upward trend for the baht will continue for at least several more years.

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