What happened to the exchange rates?

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Gaybutton
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What happened to the exchange rates?

Post by Gaybutton »

In November the US dollar to baht exchange rate got as high as 38 baht to the dollar and predictions were that the exchange rate could reach 40 baht to the dollar by the end of the year. Many of us, including me, were very pleased and excited about it after so many years of lousy exchange rates.

Unfortunately, as usual things did not work out as predicted. Obviously a 40 baht to the US dollar by the end of the year is not going to happen.

The exchange rate has now slipped back into the mid 34s. Of course I have no idea what to expect now. What I do know is November 1 my retirement pension came in at 38.08 baht to the US dollar and December 1 it came in at 35.23. That's quite a drop in one month.

What's going on? Why is the exchange rate moving in this direction? What do you think we should expect?
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Re: What happened to the exchange rates?

Post by Undaunted »

Gaybutton wrote: Sun Dec 04, 2022 7:13 am What's going on? Why is the exchange rate moving in this direction? What do you think we should expect?
In an attempt to slow inflation the U.S.federal reserve has raised the rate 6 times and as the U.S. economy has stayed strong and the fed has signaled it will slow down its rate hikes with the next expected to be a limp .5% the dollar is pulling back.
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Re: What happened to the exchange rates?

Post by Rocket »

Undaunted wrote: Sun Dec 04, 2022 2:04 pm
Gaybutton wrote: Sun Dec 04, 2022 7:13 am What's going on? Why is the exchange rate moving in this direction? What do you think we should expect?
In an attempt to slow inflation the U.S.federal reserve has raised the rate 6 times and as the U.S. economy has stayed strong and the fed has signaled it will slow down its rate hikes with the next expected to be a limp .5% the dollar is pulling back.
“And as the US economy has stayed strong”, would mean the Fed would have to increase rates to slow the economy. As a slowed economy is the only way to bring down inflation.

Yes you’re right, the fed gave signals it would not be as aggressive raising rates, which the markets pounced on.

Imho, realistically the fed cannot keep rates higher than they are now for very long. It would drag down the economy and finance experts are predicting a recession next year because of these higher rates. Also the interest on the USA federal debt is problematic.

If you’re wishing for a stronger dollar, perhaps the fed will raise rates more aggressively in the near term if the inflation numbers come in “hot”. But it will only be temporary. Personally, I’d be pleased to see the dollar stabilized here and not go lower in the longer term.
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Re: What happened to the exchange rates?

Post by Jun »

Gaybutton wrote: Sun Dec 04, 2022 7:13 ampredictions
Economic predictions belong in the bin.
Bear in mind, that predicting the DIRECTION of the next interest rate move is only right just over 50% of the time & exchange rates are heavily influenced by interest rates. So about on par with a monkey tossing coins.
I wouldn't waste a second of your life on economic predictions.
Gaybutton wrote: Sun Dec 04, 2022 7:13 amWhat do you think we should expect?
Over the next decade, if you plan on a USD to THB rate somewhere between 17 and 60, you will probably be OK. Although nothing is certain. Exchange rates move all over the damn place.

Anyone who contributes to this forum and knows enough to reliably predict exchange rates should already be flying to Thailand by private jet.
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Re: What happened to the exchange rates?

Post by Rocket »

Agree that predictions are mostly worthless. That’s probably accurate, between 17 and 60.
I’ll say between 15 and 62, ha ha.
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Re: What happened to the exchange rates?

Post by Gaybutton »

Jun wrote: Mon Dec 05, 2022 3:05 am Exchange rates move all over the damn place.
The trouble is that movement is rarely very much in our favor. Oh well, for a change at least for the US dollar November was good. It didn't last long, but I'm grateful it happened at all.

I think it is obvious how ignorant I am about finances and economics, but one thing I did manage to learn over the years - whatever the predictions are, it will be something different that actually happens. As far as I can tell, the predictions almost always tell us what not to expect.
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Re: What happened to the exchange rates?

Post by Jun »

Gaybutton wrote: Mon Dec 05, 2022 7:01 amThe trouble is that movement is rarely very much in our favor.
When our respective countries run on debt, deficits and money printing, we don't deserve strong currencies in the long term.
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Re: What happened to the exchange rates?

Post by Gaybutton »

Now I will expose even further ignorance on my part. I don't understand how or why interest rates have a strong influence on exchange rates.

Also, what other major factors significantly affect exchange rates?

One of the few things I think I've caught on to is a lot of money flowing into Thailand means a stronger baht. A lot of money flowing out of Thailand means a weaker baht. Is that correct? If it is, I understand that, but I don't understand why that is so. Also, I would have thought the Covid crisis and tourism industry crisis would have had a huge negative effect on the strength of the baht, yet it held relatively steady throughout. I don't understand why.
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Re: What happened to the exchange rates?

Post by Jun »

I don't claim to understand this fully either, however, let's make a start.

We need to do this part first:
Gaybutton wrote: Mon Dec 05, 2022 7:46 pmOne of the few things I think I've caught on to is a lot of money flowing into Thailand means a stronger baht. A lot of money flowing out of Thailand means a weaker baht. Is that correct? If it is, I understand that, but I don't understand why that is so.
This is supply and demand. Net money flowing out of Thailand means there are more people selling baht than buying it. So the price falls and vice versa. It's just like any other commodity, from bananas to oil. The supply and demand balance moves the price.
Gaybutton wrote: Mon Dec 05, 2022 7:46 pmAlso, I would have thought the Covid crisis and tourism industry crisis would have had a huge negative effect on the strength of the baht, yet it held relatively steady throughout. I don't understand why.
(i) Many other currencies have had problems with their economies too
(ii) Thailand was running a large balance of trade surplus before covid. Even at the moment, they are only running a very small deficit. This is far better than our own countries.
Perhaps the markets think the decline in the tourism trade is only temporary.
Gaybutton wrote: Mon Dec 05, 2022 7:46 pm Now I will expose even further ignorance on my part. I don't understand how or why interest rates have a strong influence on exchange rates.
When people and financial institutions can earn (say) 4% in a US bank account and 0.75% in a Thai bank account, there is a temptation to buy USD and stick the money in an account earning the 4% interest, as that is a lot better than the 0.75%. When the banks can move their own money with a negligible transaction cost, this is quite interesting.
The same thing can work in reverse, with people borrowing in the low interest rate currency and then moving the borrowed money abroad to buy their house. Thus weakening the low interest rate currency.

All this can go horribly wrong if the exchange rate movements more than wipe out the interest rate saving. Particularly with a large sum, such as on a house mortgage.

Gaybutton wrote: Mon Dec 05, 2022 7:46 pmAlso, what other major factors significantly affect exchange rates?
I don't know the full set, but currency controls are one known factor.
Some countries have restrictions on the free movement of currency, by limiting how much money people can take out of the country. This therefore influences the exchange rate, because it reduces the flow of money out of the country.
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Re: What happened to the exchange rates?

Post by Gaybutton »

Thank you Jun. You have made much of this clear. There are still some parts I don't understand.
Jun wrote: Mon Dec 05, 2022 11:04 pm buy USD and stick the money in an account earning the 4% interest, as that is a lot better than the 0.75%.
I buy USD in Thailand, but find out that putting the dollars into a bank account in, say, Paraguay earns 5%. But how? Wouldn't I need a bank account in Paraguay in my name? Wouldn't I need to make a trip to Paraguay to open the account? Wouldn't I have to make sure it would be no problem to deposit money and withdraw money using something like Wise to do it?

Jun wrote: Mon Dec 05, 2022 11:04 pm Perhaps the markets think the decline in the tourism trade is only temporary.
What is propping up the baht until they know? After all, Thailand's tourist industry has been in real trouble for a long time now - and still is. I would have thought the baht would have lost an appreciable part of its value as a result, but apparently that hasn't happened.
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