The U.S. dollar index has fallen close to a four-year low amid heightened geopolitical uncertainty. On January 17, U.S. President Donald Trump threatened to impose higher tariffs on eight European countries from early February, though the warning was later withdrawn after the United States and NATO reached an agreement related to Greenland.

Despite the reversal, the dollar remained under pressure following a recent “rate check” by the Federal Reserve (Fed) Bank of New York, which fuelled concerns that the United States and Japan could coordinate currency market intervention to curb the yen’s depreciation.

A “rate check” refers to an informal market probe in which the Fed asks brokers and banks about exchange rates at which they would be willing to transact should the central bank decide to buy or sell foreign currencies.

The dollar’s decline accelerated further after Trump said the greenback’s value was “very good”, a remark traders interpreted as a signal that the White House is comfortable with a weaker dollar. These factors prompted heavier dollar selling in the second half of the month.

As the dollar weakened, USD/VND rates in Vietnam also declined across both official and informal markets. By the end of January, the interbank exchange rate had fallen 0.9% from the start of the month to VND26,025 dong per dollar, the lowest level since mid-June 2025. The reference rate dropped 0.2% from the start of the year to VND25,074, while the free-market rate slid 2.6% year-to-date to around VND26,225.

According to analysts of MBS - a member of the military-run MBBank, the exchange rate has been supported mainly by the dollar’s weakening trend, which is expected to persist amid diverging monetary policies across major economies. The U.S. dollar index (DXY) is forecast to fall to around 95 by mid-2026, while major currencies such as the Japanese yen, British pound and euro are expected to appreciate. Currencies in emerging markets, including Vietnam, are also likely to benefit as interest rate differentials with the United States narrow.

MBS noted that several factors will continue to put pressure on the exchange rate in 2026. First, although Vietnam posted a trade surplus of more than $20 billion in 2025, most of the surplus came from the foreign-invested sector, while domestic firms recorded a deficit of nearly $30 billion, underscoring strong demand for U.S. dollars during the production expansion cycle.

Second, imports are expected to grow in line with exports in 2026, driven largely by rising imports from the United States as Vietnam seeks to narrow its trade deficit with that market.

Finally, international gold prices are forecast to climb above $5,000 an ounce in the period ahead due to geopolitical risks and stronger safe-haven demand. Higher gold imports would also add pressure on the domestic exchange rate.

Balancing these factors, MBS expects the USD/VND exchange rate to remain relatively stable in 2026, with a rise of 2.5-3%.

Interbank rates hit decade-high

MBS said interbank interest rates eased in January but surged above 17% in early February due to seasonal factors. Overnight rates fell from 8.15% at the start of January to a low of 2.6% on January 22, before rebounding to 5% by month-end and jumping to 17.25% in early February, the highest level in more than 10 years.

The spike came amid rising liquidity pressures driven by seasonal payment demand ahead of the Lunar New Year holiday (February 17 is the first day of the Lunar New Year), as well as banks accelerating credit growth in January to offset slower activity in February. The period also coincided with peak corporate tax payment deadlines, further draining system liquidity.

In response, the State Bank of Vietnam (SBV), the country's central bank, resumed strong net liquidity injections from January 23, lifting outstanding funds on the open market operations (OMO) channel to nearly VND489.5 trillion ($18.85 billion) as of February 9, exceeding the previous record set late last year.

The SBV also reactivated its USD/VND FX swap facility, with a total cap of $2 billion across two sessions on February 4-5.

As a result, overnight rates eased to 3.8% by February 11. One-week to one-month tenors hovered around 6.9-7.3%, while six-month rates stood at 7.7%.

In January, the SBV injected nearly VND154.7 trillion ($5.96 billion) via OMO operations with tenors of 7-56 days at an interest rate of 4.5%, while maturities during the month exceeded VND242.9 trillion (VND9.35 billion). After four consecutive months of net liquidity injections, the central bank returned to net absorption of more than VND88.2 trillion ($3.4 billion) in January.

Singaporean bank UOB on November 10, 2025 said it maintains a cautious outlook on the Vietnamese dong (VND) and revise its USD/VND forecasts to 26,400 in Q4/2025, 26,300 in Q1/2026, 26,200 in Q2/2026 and 26,100 in Q3/2026.

"We continued to be negative on the VND, which stayed close to its record low of 26,436/USD reached in August, as the State Bank of Vietnam (SBV) continued to guide the currency weaker through its daily fixings," wrote UOB in a release.

Given the limited correlation between USD/VND and the broader DXY, the bank said it expects the VND to lag regional peers in benefiting from renewed USD softness, which is likely to emerge as the Fed proceeds with further rate cuts.