Fed downsizes QE, Thai baht weakens

[webfact]

Fed downsizes QE, Thai baht weakens
By Digital Content



BANGKOK, Mar 20 – The US Federal Reserve has decided to cut its quantitative easing (QE) volume by US$10 billion, effective in April – a move that consequently weakens the baht, a senior central bank official said today.

Roong Mallikamas, Bank of Thailand spokesperson, said the Fed’s QE reduction to US$55 billion a month was predictable and it will pose only a slight impact on the global money market.

The US dollar has significantly strengthened against other currencies while the baht weakened to Bt32.33-32.35 against the dollar at the opening today – a decline in line with other currencies in the region.

The Fed’s statement has signalled a policy interest rate adjustment after the QE termination, and interest rates will possibly be higher in the second quarter of next year.

Dr Roong said that the global interest rates are on a rising trend, contributing to funds flowing back to the US dollar in the short term.

She said the Fed’s decision to downsize QE indicated strengthened US economy – a positive sign for the global and Thai economies.

Thailand’s economic growth has plunged to less than 3 per cent which is far below the potential growth of 4-5 per cent, mainly due to disappointing consumption and investment given the months-long political turmoil.

She said the investment sector will have to introduce new manufacturing technology to keep pace with advanced global technology, or it would lose its opportunity.

The central bank needs to continue relaxed money policy to stimulate the economy, she said. (MCOT online news)


-- TNA 2014-03-20

[diggledunc]

Surprised that the prospect of increased tapering hasn't already been factored in to the exchange rate. Whar has probably had more effect to day is Yellen's comment about prospective interest rate increases.

I note in the comment above that 'the bank needs to maintain a relaxed monetary policy' however I have been watching the baht most days and to me it seems like it is being defended from weakening. I use the BBC site as it gives a mid-price and you can also see the intra day. Seems like so many days now there are straight lines where the baht hits a certain point of weakness and then is being bought back. Straight lines on a graph like this would seem to indicate to me central bank support as I am not sure why else they would occur. If the baht was freely floating this wouldn't occur.

If I am right I wonder how long this support can carry on. If it stops then I could see the baht weakening quite sharply. Being a UK£ holder though I am not expecting too much as the £ has already fallen off its four year high against the US$.

Anybody thinking the same as me or interpreting the market the same way. Maybe someone could put an alternative view. Would be very interested to hear.

[IsaanUSA]

I have nothing to contribute, but wow. Great reply to the topic!!

Also, I agree, the tapering should have been factored in already since we knew it was coming.

[wolfmanjack]

I expected the baht to drop when the BOT dropped the interest rate but it barely moved.

As for BOT intervention the forex news board that i watch had a news flash that the BOT intervened every time the baht touched 33 to the USD. I have not seen that flash at lower levels. It doesn't mean that it isn't happening though.

[diggledunc]

I have nothing to contribute, but wow. Great reply to the topic!!

Also, I agree, the tapering should have been factored in already since we knew it was coming.

Cheers

[diggledunc]

I expected the baht to drop when the BOT dropped the interest rate but it barely moved.

As for BOT intervention the forex news board that i watch had a news flash that the BOT intervened every time the baht touched 33 to the USD. I have not seen that flash at lower levels. It doesn't mean that it isn't happening though.

Yes I had same feeling but I suppose if there was going to be weakness it would have been reflected before any cut according to how the markets perceived the likelihood of a reduction in advance of it happening. When it happened some or most of the effect would probably already have been factored in.

Which board do you watch. I look at BBC simply because of the way they give information.

[wolfmanjack]

I expected the baht to drop when the BOT dropped the interest rate but it barely moved.

As for BOT intervention the forex news board that i watch had a news flash that the BOT intervened every time the baht touched 33 to the USD. I have not seen that flash at lower levels. It doesn't mean that it isn't happening though.

Yes I had same feeling but I suppose if there was going to be weakness it would have been reflected before any cut according to how the markets perceived the likelihood of a reduction in advance of it happening. When it happened some or most of the effect would probably already have been factored in.

Which board do you watch. I look at BBC simply because of the way they give information.

I hadn't noticed much movement at all since it dropped into the 32.20 - 32.40 range so I did not figure the rate cut had been factored in. When it was bumping off of 33 there was a lot of talk about expecting a rate cut that did not happen. Then when the rate cut came it went from around 32.25 to 32.40 and back down to 32.30 so not much movement at all.

I watch the newsfeed on orderflowtrading which also has a squakwire feed.

Edited March 22, 2014 by wolfmanjack

[chiang mai]

Surprised that the prospect of increased tapering hasn't already been factored in to the exchange rate. Whar has probably had more effect to day is Yellen's comment about prospective interest rate increases.

I note in the comment above that 'the bank needs to maintain a relaxed monetary policy' however I have been watching the baht most days and to me it seems like it is being defended from weakening. I use the BBC site as it gives a mid-price and you can also see the intra day. Seems like so many days now there are straight lines where the baht hits a certain point of weakness and then is being bought back. Straight lines on a graph like this would seem to indicate to me central bank support as I am not sure why else they would occur. If the baht was freely floating this wouldn't occur.

If I am right I wonder how long this support can carry on. If it stops then I could see the baht weakening quite sharply. Being a UK£ holder though I am not expecting too much as the £ has already fallen off its four year high against the US$.

Anybody thinking the same as me or interpreting the market the same way. Maybe someone could put an alternative view. Would be very interested to hear.

Tapering is not fully priced in because the rate of taper has always been uncertain, initially it was thought that tapering would be a slow gradual process over time, today's view is that it may be accelerated. But I do agree with you that Yellen re. interest rates is a key factor.

As for the Baht being defended against weakening: IF the BOT were indeed spending money on weakening THB, that would show up as a decrease in their foreign currency reserve holdings and no such depletion is seen. It's therefore very safe to presume that the value of THB is not being defended or weakened.

http://www2.bot.or.th/statistics/BOTWEBSTAT.aspx?reportID=94&language=ENG

[diggledunc]

I expected the baht to drop when the BOT dropped the interest rate but it barely moved.

As for BOT intervention the forex news board that i watch had a news flash that the BOT intervened every time the baht touched 33 to the USD. I have not seen that flash at lower levels. It doesn't mean that it isn't happening though.

Yes I had same feeling but I suppose if there was going to be weakness it would have been reflected before any cut according to how the markets perceived the likelihood of a reduction in advance of it happening. When it happened some or most of the effect would probably already have been factored in.

Which board do you watch. I look at BBC simply because of the way they give information.

I hadn't noticed much movement at all since it dropped into the 32.20 - 32.40 range so I did not figure the rate cut had been factored in. When it was bumping off of 33 there was a lot of talk about expecting a rate cut that did not happen. Then when the rate cut came it went from around 32.25 to 32.40 and back down to 32.30 so not much movement at all.

I watch the newsfeed on orderflowtrading which also has a squakwire feed.

Good afternoon.

Just had a look on orderflowtrading. See what you mean about snippits of news coming in. Not sure if I saw the squawkwire feed. After a short time they asked me to sign up to receive free info. Thought if I did would possibly get many emails and do they pass the email address on, I don't know, so declined.

Just looked at BBC intraday for Thai baht/US$ and baht weakening but seems to be strengthening to certain levels which are getting weaker. It's those straight lines again at certain levels. Interesting to see the post from chiang mai. I wonder why these lines are happening.

[chiang mai]

The exchange rate is coming out of Thompson Reuters over the weekend, until around 1PM Monday when UK business starts, not exactly normal or typical intrad day stuff until then.

[diggledunc]

Surprised that the prospect of increased tapering hasn't already been factored in to the exchange rate. Whar has probably had more effect to day is Yellen's comment about prospective interest rate increases.

I note in the comment above that 'the bank needs to maintain a relaxed monetary policy' however I have been watching the baht most days and to me it seems like it is being defended from weakening. I use the BBC site as it gives a mid-price and you can also see the intra day. Seems like so many days now there are straight lines where the baht hits a certain point of weakness and then is being bought back. Straight lines on a graph like this would seem to indicate to me central bank support as I am not sure why else they would occur. If the baht was freely floating this wouldn't occur.

If I am right I wonder how long this support can carry on. If it stops then I could see the baht weakening quite sharply. Being a UK£ holder though I am not expecting too much as the £ has already fallen off its four year high against the US$.

Anybody thinking the same as me or interpreting the market the same way. Maybe someone could put an alternative view. Would be very interested to hear.

Tapering is not fully priced in because the rate of taper has always been uncertain, initially it was thought that tapering would be a slow gradual process over time, today's view is that it may be accelerated. But I do agree with you that Yellen re. interest rates is a key factor.

As for the Baht being defended against weakening: IF the BOT were indeed spending money on weakening THB, that would show up as a decrease in their foreign currency reserve holdings and no such depletion is seen. It's therefore very safe to presume that the value of THB is not being defended or weakened.

http://www2.bot.or.th/statistics/BOTWEBSTAT.aspx?reportID=94&language=ENG

Thanks, had a look at those stats and I see what you mean. Leaves the question open though as to why, well the BBC intraday anyway is showing such strange movements. As a bit of background I get money sent over every month from UK so am always trying to guess where the baht is going and adjust the amount accordingly to make the most of better months. Since I got back in April I have made every call right except of course I couldn't forecast the Suthep element.

I think though that it isn't the tapering per se that causes a weakness but the outflow of money that stems from it. More outflows to come? I don't know but I would have thought once reducing QE was on the cards or announced a lot of the money to be repatriated would have been so before the baht weakened too much so as not to create forex losses.

Do you look at the BBC website? If you do what are your thoughts? Would appreciate your comments regarding the straight lines of 'seeming' defence. The graph just doesn't look natural in respect of a normal trading pattern.

UK CPI out tomorrow 25th. Late this month, always released on Tuesdays but maybe delayed due to Osborne's speech, surely not. Forecasts I have seen suggest there could be a decline to 1.6% so I don't if this happens see the £/US$ rate getting better for me any time soon.

[denby45]

Dollar index has weakened from 83.46 to 80.27 since June last year. In the meantime Thai Baht has also weakened against the $ albeit has very recently recovered slightly. If the Dollar index does what is expected and start strengthening again during tapering and raising of interest rates then we could see a further more rapid decline of the Baht over time.

Speculation of course.

Den

[chiang mai]

Need to be clear about which exchange you're referring to GBP/THB or USD/THB - both GBP and THB have weakened against USD.

I agree it's not about QE but about the outflows, I believe the big money has already gone, what's left is ebb and flow stuff, can't see any more large scale outflows unless the West raises rates unexpectedly and by some degree.

Growing concern in the UK that GBP is too strong (my thoughts exactly for the past four months) - next UK GDP announcement will show downwards because of the bad weather, perhaps expect a further weakening of GBP as a result? Dunno.

The down lines on the BBC chart: broker/institutional trades perhaps? Dunno again.

Some other observations here: http://www.poundsterlingforecast.com/

Edited March 24, 2014 by chiang mai

[Naam]

Dollar index has weakened from 83.46 to 80.27 since June last year. In the meantime Thai Baht has also weakened against the $ albeit has very recently recovered slightly. If the Dollar index does what is expected and start strengthening again during tapering and raising of interest rates then we could see a further more rapid decline of the Baht over time.

Speculation of course.

Den

the antiquated and anachronistic 40 year old Dollar index is calculated vs. six (EUR, CAD, JPY, GBP, SEK, CHF) "major" currencies out of which two (JPY and CHF) showed significant weakness/fluctuations during the last several years. one of the currencies (SEK) is as insignificant as cowrie shells.

in short... using this index as a basis for any evaluation is as useless as tea leaves, a gypsy fortune teller or a voodoo priestess throwing chicken bones

[chiang mai]

UK CPI down from 1.9 to 1.7, THB weakens on the back of that, not by much but the satang chasers will be pleased.

[diggledunc]

Need to be clear about which exchange you're referring to GBP/THB or USD/THB - both GBP and THB have weakened against USD.

I agree it's not about QE but about the outflows, I believe the big money has already gone, what's left is ebb and flow stuff, can't see any more large scale outflows unless the West raises rates unexpectedly and by some degree.

Growing concern in the UK that GBP is too strong (my thoughts exactly for the past four months) - next UK GDP announcement will show downwards because of the bad weather, perhaps expect a further weakening of GBP as a result? Dunno.

The down lines on the BBC chart: broker/institutional trades perhaps? Dunno again.

Some other observations here: http://www.poundsterlingforecast.com/

Been having a few laptop problems so been very quiet for a few weeks.

Thanks for a very interesting hyperlink.

When I am looking at GPB/Thai B rate I look at how many baht for the US dollar then how many US dollars for the £ as there is a correlation between this. Even with the Baht moving little against the $ the £ has gone up against the baht virtually in line with its improvement against the US $.

Big drop in US $ v B yesterday hence with weakening of £ to $ as well even bigger drop in UK£ v Bhat exchange rate.

After Mark Carney's words about interest rates seems the £ may weaken as rates may not rise as soon as anticipated by the markets.

After all we have seen just recently:-

-Yingluck removed from office

-Further charges which could lead to impeachment

-Yingluck being declared as the candidate for PM at elections

-Threats of disruption on July 20

-More deaths and shootings in BKK

-Reductions in GDP forecast

-Credit rating agency warnings, was it last week and there must be more

I am very surprised that the baht hasn't weakened further but doesn't seem to be able to break out of a tight range.

Whatever it is I still think there must be interference from somewhere in the market. This being Thailand perhaps it is the ghosts of 1997!!!!!!

[SheungWan]

Surprised that the prospect of increased tapering hasn't already been factored in to the exchange rate. Whar has probably had more effect to day is Yellen's comment about prospective interest rate increases.

I note in the comment above that 'the bank needs to maintain a relaxed monetary policy' however I have been watching the baht most days and to me it seems like it is being defended from weakening. I use the BBC site as it gives a mid-price and you can also see the intra day. Seems like so many days now there are straight lines where the baht hits a certain point of weakness and then is being bought back. Straight lines on a graph like this would seem to indicate to me central bank support as I am not sure why else they would occur. If the baht was freely floating this wouldn't occur.

If I am right I wonder how long this support can carry on. If it stops then I could see the baht weakening quite sharply. Being a UK£ holder though I am not expecting too much as the £ has already fallen off its four year high against the US$.

Anybody thinking the same as me or interpreting the market the same way. Maybe someone could put an alternative view. Would be very interested to hear.

Tapering is not fully priced in because the rate of taper has always been uncertain, initially it was thought that tapering would be a slow gradual process over time, today's view is that it may be accelerated.

It has been 10 billion each and every month since it started.

[chiang mai]

Need to be clear about which exchange you're referring to GBP/THB or USD/THB - both GBP and THB have weakened against USD.

I agree it's not about QE but about the outflows, I believe the big money has already gone, what's left is ebb and flow stuff, can't see any more large scale outflows unless the West raises rates unexpectedly and by some degree.

Growing concern in the UK that GBP is too strong (my thoughts exactly for the past four months) - next UK GDP announcement will show downwards because of the bad weather, perhaps expect a further weakening of GBP as a result? Dunno.

The down lines on the BBC chart: broker/institutional trades perhaps? Dunno again.

Some other observations here: http://www.poundsterlingforecast.com/

Been having a few laptop problems so been very quiet for a few weeks.

Thanks for a very interesting hyperlink.

When I am looking at GPB/Thai B rate I look at how many baht for the US dollar then how many US dollars for the £ as there is a correlation between this. Even with the Baht moving little against the $ the £ has gone up against the baht virtually in line with its improvement against the US $.

Big drop in US $ v B yesterday hence with weakening of £ to $ as well even bigger drop in UK£ v Bhat exchange rate.

After Mark Carney's words about interest rates seems the £ may weaken as rates may not rise as soon as anticipated by the markets.

After all we have seen just recently:-

-Yingluck removed from office

-Further charges which could lead to impeachment

-Yingluck being declared as the candidate for PM at elections

-Threats of disruption on July 20

-More deaths and shootings in BKK

-Reductions in GDP forecast

-Credit rating agency warnings, was it last week and there must be more

I am very surprised that the baht hasn't weakened further but doesn't seem to be able to break out of a tight range.

Whatever it is I still think there must be interference from somewhere in the market. This being Thailand perhaps it is the ghosts of 1997!!!!!!

Was just wondering what you views are today, in light of current events and your earlier comments?

[diggledunc]

Need to be clear about which exchange you're referring to GBP/THB or USD/THB - both GBP and THB have weakened against USD.

I agree it's not about QE but about the outflows, I believe the big money has already gone, what's left is ebb and flow stuff, can't see any more large scale outflows unless the West raises rates unexpectedly and by some degree.

Growing concern in the UK that GBP is too strong (my thoughts exactly for the past four months) - next UK GDP announcement will show downwards because of the bad weather, perhaps expect a further weakening of GBP as a result? Dunno.

The down lines on the BBC chart: broker/institutional trades perhaps? Dunno again.

Some other observations here: http://www.poundsterlingforecast.com/

Been having a few laptop problems so been very quiet for a few weeks.

Thanks for a very interesting hyperlink.

When I am looking at GPB/Thai B rate I look at how many baht for the US dollar then how many US dollars for the £ as there is a correlation between this. Even with the Baht moving little against the $ the £ has gone up against the baht virtually in line with its improvement against the US $.

Big drop in US $ v B yesterday hence with weakening of £ to $ as well even bigger drop in UK£ v Bhat exchange rate.

After Mark Carney's words about interest rates seems the £ may weaken as rates may not rise as soon as anticipated by the markets.

After all we have seen just recently:-

-Yingluck removed from office

-Further charges which could lead to impeachment

-Yingluck being declared as the candidate for PM at elections

-Threats of disruption on July 20

-More deaths and shootings in BKK

-Reductions in GDP forecast

-Credit rating agency warnings, was it last week and there must be more

I am very surprised that the baht hasn't weakened further but doesn't seem to be able to break out of a tight range.

Whatever it is I still think there must be interference from somewhere in the market. This being Thailand perhaps it is the ghosts of 1997!!!!!!

Was just wondering what you views are today, in light of current events and your earlier comments?

Good afternoon from a very hot Isan, hope my laptop survives my post.

Don't know if you have heard of Linda Yueh, she does work for the BBC and I think was on Bloomberg. She wrote an interesting article on Thailand in which she opined that as Thailand had had many coups it might not have the same effect as it would have in other countries. I like her because she can talk about something quite technical but put it in plain English.

In another article in the last few days the BBC had a comment about bank intervention.

Looking at the BBC graph for intra-day trading it seems for days now the baht has hit a certain level of weakness and then strengthens. These points of weakness may be hit several times over a few hours and it strengthens again from the same point. Today's graph shows that it hit about 32.80 many times in the last 24 hours and then strengthened and these points form in a straight line. Why ever this is happening and I know some do not see intervention it just isn't normal.

I would suggest that we are not looking at normal market trading and therefore whoever is buying the baht to prevent it weakening is distorting the market.

In a situation like this if I am correct perhaps normal considerations of currency direction just go out of the window.

I see Gen Prayuth has paid the farmers and cancelled the rice and tablet schemes. Just perhaps removing Yingluck and her government by a coup has reduced uncertainty as I think if she or her cohorts had still been there we would have been looking at prolonged protests etc.

I am just waiting to see events now. Until the foreign money flows back surely the baht must weaken and we could be looking at recession if publicly financed infrastructure works are put on hold or cancelled. First quarter I think was -0.6 GDP. Interestingly Bloomberg published some research last week showing a US bank though the baht could fall to 37. Hope they're right.

How do you assess it.