The reserves jumped $1.1 billion from the week prior, mainly due to a weakening dollar and BOT swap transactions. The increase was not caused by capital inflows, according to a BOT source, who asked for anonymity.

The reserves also hit the same $58.1 billion high on May 11 before declining gradually over the last few weeks.

"The weakening dollar against other currencies was the main reason for the reserves increase," said the source.

The source said non-dollar currencies in the reserves had appreciated quickly this week, resulting in the sharp rise in terms of the US dollar. The euro was up 2 per cent from $1.25 in June 23 to $1.279.

The Japanese yen and pound sterling also appreciated by 1.5 per cent and 1.4 per cent, respectively.

In addition, a $30-million rise in the reserves in the last week of June was due to the BOT buying dollars in sell-buy swap transactions in a bid to boost liquidity in the system, said the source. As a result, the forward obligations grew fell to $4.9 billion at the end of June compared to $5.2 billion in the previous week.

Meanwhile, the baht strengthened again yesterday afternoon after a rumour that the Chinese central bank would widen its yuan trading band again.

The rumour spread over the market following the People's Bank of China's call for a special meeting.

The baht yesterday peaked at Bt38-Bt38.10 to the US dollar, up from the opening rate of Bt38.15-Bt38.16.

The BOT source said the rise in the baht was insignificant and in line with other regional currencies. It appreciated by 0.6 per cent from Thursday's close of Bt38.23, compared with a 0.6 per cent rise of the Indonesian rupiah and 0.6 per cent increase of the Japanese yen.

The Korean won strengthened by 0.5 per cent, while the Philippines peso was up 0.8 per cent.

The euro and the pound sterling yesterday also increased in value by around 0.4 per cent and 0.2 per cent respectively due to the European Central Bank's announcement that it would raise its policy rate at its next meeting. The two currencies tend to move in the same direction.

The baht was in fact stronger at the beginning of the week due to the Bank of Japan's expected tightening of its monetary policy and an improving inflation rate in the US. The capital inflow was also caused by the appreciation of the baht.

However, the baht and other regional currencies weakened on Wednesday due to North Korea's missile test.

The source said the rising value of the baht and other Asian currencies was unlikely to last long as traders continued to fret over the increasing risk of investments in emerging market.

Last year, China was pressurised by the US to float its currency in a bid to lower its trade deficit with the mainland. As a result, Asian currencies were bought amid speculation they would strengthen in line with the yuan.

Anoma Srisukkasem

The Nation