However, Fed chair Jerome Powell managed to sooth frayed nerves as he highlighted that policy is on balance restrictive and the Fed is not looking at hiking rates.

Overall, the macroeconomic team of UOB maintains expectations of 2x25 basic points cuts across 2024, in September and December, although the risk is still tilted towards the Fed delaying cuts even further.

In the foreign exchange space, the impact of a later start to the Fed’s easing cycle on the USD is clear. It is all but certain that the USD is likely to stay strong, at least in the second quarter of 2024.

However, consistent with the view of lower US rates going forward, UOB reiterated that USD would begin to weaken, starting later in the third quarter of the year. The key risk to the bearish USD view is that the Fed keeps its rates unchanged.

UOB expects Asian foreign exchange to stay weak for the remainder of the second quarter of 2024. UOB's expectation of an eventual Asian foreign exchange recovery is still intact, albeit starting from the third quarter instead. The key risk to the cautiously positive view on Asia foreign exchange is a sudden Chinese Yuan (CNY) devaluation.

In Vietnam, the USD/VND rate traded at a new high above 25,463 in April alongside broad USD strength against Asian peers. With receding Fed rate cut expectations, the USD/VND rate is likely to stay elevated for a while longer. The State Bank of Vietnam said it had intervened in the foreign exchange markets in April and this may help to keep volatility in check.

Beyond near-term external headwinds, UOB expects the VND to draw support from resilient fundamentals and the subsequent recovery of the CNY. UOB's updated USD/VND forecasts are 25,600 in the second quarter, 25,100 in the third, 24,800 in the fourth quarter of 2024, and 24,600 in the first quarter of next year.