Under a 2025 outlook report released recently, experts from Vietcombank Securities Company (VCBS) predicted the US dollar index (DXY) may remain at a high level and may last longer than expected. At the same time, the main trend of central banks around the world is to lower interest rates to stimulate economic growth.
In addition, the labour market and service sector of the US are still quite positive, so it is likely that the US Federal Reserve (Fed) will delay cutting interest rates longer than expected, that will also cause the dollar to be stronger for longer than that of other currencies.
Geopolitical conflicts will also lead to investment demand in safe-haven assets and the dollar may be the preferred asset.
Dr Vu Mai Chi, a lecturer of the Banking Academy, also noted Vietnam will face risks from exchange rate fluctuations and changes in trade strategies of major economies, especially the protectionist policies of the US under the leadership of new President Donald Trump. Protectionism under Trump’s administration could increase trade barriers and affect exports and FDI flows into Vietnam.
Sharing the same view, expert Dr Nguyen Tri Hieu predicted that in 2025, the USD/VND exchange rate could continue to be strongly affected by the economic policies of President Trump. Specifically, Trump's tax reduction policy for high-income earners is expected to increase the US budget deficit, which could lead to the US government having to issue bonds with high interest rates to stabilise the budget.
As a result, inflation could increase, forcing the Fed to adjust monetary policy from loosening to tightening and raising interest rates again. When interest rates in the US increase, the dollar will strengthen, causing the dong to depreciate against the dollar and the USD/VND exchange rate to increase.
The possibility of a sharp increase in the USD/VND exchange rate will significantly impact the monetary policy of the State Bank of Vietnam (SBV). If the exchange rate increases, inflationary pressure in Vietnam will also increase. In that situation, the SBV may need to change its monetary policy, including raising interest rates, along with other policies to reduce pressure and control inflation. The change may be a necessary step to stabilise the macro economy in the context of global fluctuations, Hieu said.
Under a recently released report, Standard Chartered Bank Vietnam forecast that the dollar will weaken in the first half of 2025, before recovering strongly by the end of the year. The bank warned that from the second quarter of 2025 onwards, Trump’s policies could put great pressure on the exchange rate, forcing the SBV to raise the policy interest rate.
By the end of 2024, the USD/VND exchange rate increased by 4.31% compared to the beginning of this year. However, the depreciation of the dong was less than that of the Republic of Korea’s won (12.51%); Philippines’s peso (4.74%); and Indonesia’s rupiah (4.85%).
