Unveiling the dual engines behind the Thai Baht, the "strongest currency in Southeast Asia" in 2025: Unexpected tariff assistance and the tide of gold.

One of the core sovereign currencies in Southeast Asia, the Thai baht, is moving towards its largest annual increase against the US dollar in eight years. As of 2025, the Thai baht has increased by 10% against the US dollar, surpassing the Singapore dollar, Malaysian ringgit, and Indonesian rupiah, making it the strongest currency in Southeast Asia. At first glance, there is almost nothing to explain its outstanding performance compared to other sovereign currencies in the Southeast Asian region. The Thai economy is far from robust, and it is heavily burdened by the continued weakness in the tourism industry, high household debt, and the significant impact of a 19% tariff imposed on exports to the US. According to Wall Street analysts, this rare currency trend of the Thai baht is mainly driven by the rise in gold prices and the unexpected boost from Trump's tariff policy, boosting the Thai baht exchange rate. This rise in the exchange rate has weakened the competitiveness of the export-oriented manufacturing sector in this Southeast Asian country, exacerbating the challenges faced by the new Prime Minister, Anutin Charnvirakul - whose leadership will face early elections in February. Why is the Thai baht so strong? The Thai currency began to strengthen against the US dollar in mid-2024, around the time when the government launched an economic stimulus plan to boost exports and traders started selling off the US dollar before the latest round of rate cuts by the Federal Reserve. This year, concerns about the US dollar's status as a reserve currency have also provided strong support for this rise. The recent surge in the Thai baht is largely attributed to the spillover effects from the significant rise in gold prices (gold against the US dollar), driven by the softening US labor market. The softening of US employment significantly deepened market expectations for further rate cuts by the Federal Reserve in 2026, driven by the seasonal peak in the Thai tourism industry. The import tariffs led by the Trump administration have unexpectedly boosted Thailand's continuously weak economy since the pandemic: before the tariffs took effect, Asian exporters, such as those from China, shifted more locally manufactured industrial goods (such as cars) towards the US. In addition, the 19% tariff imposed by the US on Thailand's exports is lower than the 30% tariff imposed on many Chinese industrial products. This encouraged large Chinese manufacturers to establish factories in Thailand to produce goods for US consumers. This also drove foreign and domestic investment proposals in Thailand to reach a record $42.2 billion in the first seven months of 2025. The Thai baht has also been strongly boosted by the spillover effect of the more than 60% rise in gold prices this year, as investors begin to question the "American exceptionalism" due to Trump's imposition of tariffs globally and threats to the independence of the Federal Reserve's monetary policy. Investors are choosing to sell off US assets and invest in alternative commodities, including safe-haven precious metals. Gold is an important export product for Thailand and a preferred wealth storage method for many affluent Thai families. Thai commodity traders or investors play an important role in gold bar trading, positioning the country among the top ten gold markets globally. Higher gold prices and the continued strong demand from affluent families will encourage Thai traders to sell more gold, often converting their US dollar-denominated income into local currency. Statistics show that Thailand's gold exports surged by 52% to $11.6 billion in the period from January to October, leading to a large influx of US dollars into the country.