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Baht Gains as U.S. Data Eases Concern Fed Will Trim Stimulus

June 4 (Bloomberg) -- Thailand’s baht rose, snapping a five-day loss, as an unexpected contraction in U.S. manufacturing eased concern the Federal Reserve will trim asset purchases that have fueled demand for emerging-market assets.

The Dollar Index, which tracks the greenback against six major counterparts, dropped yesterday by the most in almost five months after the Institute for Supply Management’s factory index fell to 49, the lowest reading since June 2009. Thailand will probably refrain from imposing capital controls because the baht has stabilized, Chularat Suteethorn, director general of the finance ministry’s Public Debt Management Office, said May 31.

The baht climbed 0.1 percent to 30.43 per dollar as of 3:29 p.m. in Bangkok, according to data compiled by Bloomberg. It touched 30.50 yesterday, the weakest level since Jan. 4. The currency has advanced 0.5 percent this year, a performance second only to China’s yuan among Asia’s 11 most-used currencies.

“The outlook for U.S. monetary policy remains the major factor moving the currencies and the dollar is broadly weaker on that,” said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. “For Thailand, as the baht has weakened quite a lot versus the dollar, concern eased a bit over the potential capital controls.”

The baht touched 28.56 per dollar on April 22 and April 19, the strongest level since July 1997, prompting policy makers to consider steps to stem fund inflows. Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said last week measures have been prepared to combat baht volatility although they may not be used if they aren’t necessary.

Shorten Duration

One-month implied volatility in the baht, a measure of expected moves in the exchange rate used to price options, dropped 10 basis points, or 0.1 percentage point, to 6.53 percent.

The yield on the 3.625 percent government bonds due June 2023 rose five basis points to 3.64 percent, data compiled by Bloomberg show. The rate was the highest since March 13.

Central bank data on May 31 showed the nation posted a record current-account deficit of $3.4 billion in April. The 10-year U.S. Treasury yield climbed to its highest level since April 2012 on May 29, dragging rates in Asia from Malaysia to South Korea to Thailand higher.

Thai government bonds have become less attractive, said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong, citing the current-account deficit, less scope for baht appreciation and the threat of capital controls.

“Investors could shorten duration because U.S. interest rates and possibly Asian rates are going higher,” she said.

To contact the reporter on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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