In a dramatic year-end twist, some of Asia's most prominent currency trends are reversing direction. The South Korean won, which had been under severe pressure, is staging a recovery, while the Thai baht, one of the region's top performers this year, is suddenly losing ground. This volatility highlights the fragile state of Asian foreign exchange markets as 2024 draws to a close.
Won Stages a Comeback from the Brink
The embattled South Korean won was approaching a critical threshold of 1,500 per US dollar, a level last seen during the global financial crisis. However, it has bounced back over the past three trading sessions. This shift followed clear signals of support from Korean authorities, who are concerned about foreign outflows and potential strain from US investment linked to tariff negotiations.
On Monday, the won outperformed its regional peers. The rally was fueled by exporters selling dollars, anticipating official measures to bolster the local currency. Mitul Kotecha, head of Asian FX and EM macro strategy at Barclays Bank Plc, noted that South Korea's efforts—including verbal intervention and expected steps like strategic hedges by the national pension service—have significantly reduced pressure on the won.
Thai Baht Succumbs to Intervention Fears
On the opposite end of the spectrum, the Thai baht is ceding its strong gains. As the second-best performing Asian currency this year, its rally now threatens the nation's exports, raising fears that the Bank of Thailand (BOT) may intervene. These concerns materialized on Monday when the baht fell by 1.2%, its sharpest decline in seven months, lagging behind all other regional currencies.
Analysts were caught off-guard by the selloff, which occurred amid sparse year-end trading volumes. Some attributed the move directly to apprehension following Korea's aggressive currency correction. The baht was also weighed down by a new BOT rule, announced by Governor Vitai Ratanakorn on Friday, requiring financial institutions to declare foreign currency transactions of $200,000 and above. This rule aims to manage the strengthening baht and its correlation with gold transactions.
A Volatile Year for Regional Currencies
These moves underscore a turbulent finale to a year where Asian currencies have been at the forefront of global economic shifts. The region has grappled with tariff-related trade disruptions and surprising central bank actions. For instance, India's rupee has hit successive lows as a US trade deal remains elusive, forcing the Reserve Bank of India to step in. Conversely, China's yuan is headed for its best year in half a decade, even as authorities vow to prevent overshooting.
External factors like the surge in precious metals to historic highs have also contributed to currency swings in the region. Looking ahead, analysts like Kotecha suggest the baht's weakness could persist into next year. "It's hard to justify today's sharp selloff," he said, "but going into next year we do expect a broader dollar rebound and depreciation in the likes of yuan and yen, which could contribute to baht depreciation pressures especially as weak growth momentum is likely to extend into next year."
The final trading days of the year are thus painting a complex picture of recalibration and official maneuvering in Asia's foreign exchange markets, setting the stage for an uncertain start to 2025.
