On the morning of February 20th, 2024, Vietnam's state bank SBV announced the reference exchange rate between the VND and USD increased by 9 dong to 23,988 dong. Exchange rates at commercial banks also saw uniform increases across the board.

For example, rates at Eximbank increased 20 dong when purchasing USD to 24,310 dong, and rose 10 dong when selling USD to 24,690 dong. Vietcombank saw a 20 dong increase when buying USD at 24,330 dong and a rate of 24,700 dong when selling. Meanwhile, the unofficial dollar rate saw a mixed change with a 70 dong increase when purchasing at 24,970 dong but remained unchanged when selling at 25,070 dong. The unofficial rate thus maintained a gap of about 370 dong higher than bank rates.

The increases in bank rates were attributed to continued upward pressure on the global USD exchange rate. The US Dollar Index reached 104.26 points, an increase of 0.05 points from the previous day. Trading volume on US markets were low as the country observed President's Day holiday.

The Dollar Index has recorded its highest levels since November 2022 after data showed US inflation increased more than expected in January. In recent days the greenback saw some softening as retail sales figures showed the largest economy declining last month, but remained at high levels as the timing of when the Federal Reserve may begin cutting interest rates remains uncertain.

Many Fed officials still believe more data is needed to show inflationary pressures have truly eased before deciding to implement rate cuts. Markets are now awaiting the minutes from the Fed's January policy meeting due for release on February 21st for further clues on when the central bank could start lowering rates. According to the CME FedWatch tool, markets currently forecast a 77% probability of the Fed cutting rates in June.

Investors are expecting the Fed will lower interest rates by around 90 basis points for the full year, a sharper reduction than the approximately 145 basis point decrease anticipated in early February. With the Fed's current hawkish stance, upward pressure on the USD is likely to continue supporting higher USD exchange rates in Vietnam. Local banks were forced to uniformly adjust their quotes higher in line with stronger international rates.

Market participants will be keeping a close eye on upcoming US economic indicators and Fed policy signals for confirmation that inflation is indeed trending lower. Any surprises risk supporting further USD appreciation that could maintain elevated exchange rates. The State Bank of Vietnam may seek to intervene to smooth excessive volatility but has signaled a priority of exchange rate flexibility over targeting a specific rate level. For now, exports and the currency continue to face strong headwinds from the resilient dollar.