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Vietnam dong weakens ahead of Fed meeting

The Vietnamese dong currency has dropped against the U.S. dollar in the lead up to the U.S. Federal Reserve (Fed) meeting where interest rates are expected to be hiked by three-quarters of a point again.

The State Bank of Vietnam (SBV) set the central foreign exchange rate at VND23,301 per U.S. dollar on September 20, up a slight VND6 over the day earlier and roughly VND48 over the beginning of last week.

Vietcombank, the country’s leading foreign trade bank, quoted the dollar at VND23,810, up VND15 against last Friday and VND200 over last week.

The U.S. dollar index, which measures the value of the U.S. dollar against a basket of other currencies used by U.S. trade partners, rose 0.1% to 109.62. The value of the U.S. dollar remained high, with the index approaching a 20-year record high of 110.79, recorded on September 7.

At the end of last week, the dollar experienced a minor adjustment with a 0.6% increase weekly.

The global financial system is awaiting news from the Federal Open Market Committee meeting this week.

Due to runaway inflation, economists have proposed a new scenario in which the Fed should raise rates by 100 basis points, instead of 75 as previously forecast.

Last week, the exchange rate shot up, following the lead of other currencies in the region as the U.S. dollar continued to rise.

The SBV, Vietnam’s central bank, abruptly increased the selling price of the U.S. dollar. As a result, the ask price went up by VND300 to VND23,700 per dollar.

This move is a response to the U.S. dollar’s rising interest rates. According to SSI Securities Company, the exchange rate fluctuations are under control. However, the possibility of higher interest rates on the U.S. dollar will put pressure on the exchange rate from now until the end of the year.

On the other hand, the supply of foreign currency will be more positive due to seasonal factors, including incoming remittances and exports.

“The pressure on the exchange rate remains, but it is possible that the situation will ease at the end of the year when the Fed’s interest rate hike comes to an end and the risks of global growth and inflation are clearly recognized,” according to the SSI report.

Source: Saigon Times