The USD Index reached a four-week high (105,45) last night, ahead of the U.S. May inflation report, which could influence the timing of the Federal Reserve's first interest rate cut. Stronger-than-expected job data and higher wage growth in the U.S. late last week raised concerns that inflation may not cool down soon, while growth remains stable, making it less likely for the FED to cut interest rates in the coming months. The market's expectation for the first U.S. rate cut in September has now reduced to about a 50% chance. In fact, the FED is still in the phase of assessing the health of the U.S. economy, from the labor market to consumption and inflation, a year after policy rates were raised to the highest level in two decades. Early tomorrow morning, the updated forecast on the FED's interest rate outlook for Q2 will help the market understand whether there will be one or two rate cuts this year or possibly none. If the average forecast is two cuts, the earliest rate cut by the FED is expected in September. If the result is only one cut, this could be postponed until December after the U.S. presidential election. However, regardless of the scenario, the USD will remain the ultimate beneficiary in the latter part of this year due to increasing monetary policy differences between the U.S. and other major economies.
The USD/VND interbank exchange rate rose slightly by 20 Dong yesterday and was traded close to the SBV's USD selling rate of 25.450 by the end of the day. Following the global USD trend, the central exchange rate was adjusted up by 8 Dong on Tuesday morning, corresponding to an effective ceiling rate of 25.463. Despite of the fact that the exchange rate was stable in the morning, the market saw some foreign currency purchases at the afternoon session driving the exchange rate higher. It is expected that the exchange rate will be continued trading around range of 25.420 - 25.450 while awaiting the FED meeting outcome early tomorrow morning.
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