The global currency exchange rates have faced significant fluctuations as we approach the end of 2024, with the Vietnamese dong (VND) and the Euro (EUR) experiencing notable pressures against the US dollar (USD). The VND/USD exchange rate has surged, complicatively shaped by various economic policies and global market dynamics.
Recently, the VND/USD exchange rate reached VND25,900, marking a substantial rise of 4.5% from the beginning of the year according to reports from state-controlled Vietcombank. The State Bank of Vietnam (SBV) set the reference exchange rate at VND24,320, indicating slight upward adjustments as market conditions change.
On the other hand, the EUR/USD exchange rate remains under pressure. Despite maintaining stability earlier, the Euro has struggled to hold ground and has dropped consistently under $1.04. This downturn is attributed primarily to expectations surrounding dovish monetary policies from the European Central Bank (ECB), as reiterated by its president, Christine Lagarde.
Against the backdrop of these fluctuations, the U.S. dollar index (DXY) has surged to its highest level, reaching 108.24 following the Federal Reserve's commitment to only two modest interest rate cuts next year. This tight monetary stance has solidified the dollar's strength, particularly amid rising economic growth forecasts for the U.S.
Michael Kokalari, chief economist at VinaCapital, noted, "The Vietnamese dong is expected to struggle against the USD due to growing pressure on the exchange rate." This assertion supports the forecasts where the VND may depreciate by around 3% by the end of 2025, as Vietnam navigates the economic recovery following extensive rate reductions.
Tracking fluctuations of the VND throughout 2024, the currency dropped significantly, particularly over the summer months. The SBV's attempts to stabilize the exchange rate have seen interest rates hover at historically low levels, which, according to various financial analysts, might not be sustainable heading toward 2025.
Shifting focus back to the Euro, the currency has lost over 7% of its value against the dollar over the past three months. The ECB's aggressive approach to interest rate cuts has contributed to the weakening of the Eurozone economy, with the central bank openly expressing concerns about inflation and economic stagnation.
Yet the market's current conditions highlight the dichotomy present—where the USD rises, thanks to favorable U.S. policies, the Euro's future looks precarious as it contemplates additional cuts. A report from Standard Chartered indicates expectations of the Fed easing its monetary stance, leading to potential fluctuations for the Euro as projected policy shifts could shift the exchange dynamics.
The European economic outlook worsens as the ECB does not view inflation as pressing, leaving traders skeptical. This sentiment reinforces Lagarde’s statements on the euro facing diminished growth prospects, adding more weight to the currency's stability.
At present, traders focus on pivotal support and resistance levels to navigate these transitions. The EUR/USD key pivot point currently falls at $1.04465, where breaking above could signal immediate resistance, whereas on the contrary, the support rests at $1.03426, both of which shape active signals for price movements.
Market watch remains vigilant during this holiday trading lull, anticipating shifts as liquidity remains thin. Major forex analysts maintain the view, “The dollar is the forex king once again,” indicating the directional forces favoring intensive derivative trading as the new year approaches.
The paths for these currencies reveal broader ramifications for economic engagements, particularly for Vietnam where the derby of policy flexibility and currency strength present unique challenges. The outcomes influence import costs, investor sentiment, and economic growth trajectories. With the external environment rapidly changing, Asian economies, including Vietnam, may face cascading effects.
Looking forward, all eyes will be set on upcoming financial reports to ascertain how these currencies adjust to persistent pressures and whether the reset of monetary policies by the Fed will yield desired results or aggravate currency vulnerabilities across global markets.
