Pyle stops by Fowler's place. The latter is disturbed at being woken up—and more so by the sudden silence when he comes upon Pyle and Phuong in the other room.
Pyle himself is very upset at the letter Fowler sent him.
No, not because it helps Fowler's chances with Phuong, but because he knows it's a lie.
Phuong's sister, now working for the Economic Attaché, has learned that Fowler has been called home to England. She also knows of the letter from Helen. Phuong showed it to her, and her sister, knowing English, exposed to the lie to Phuong.
Fowler dismisses Pyle's complaint about his lack of scruples and hints that he knows Pyle's work with plastics is less than scrupulous.
Pyle doesn't take the bait to reveal what he's up to.
Fowler tells him to go away and play with his plastics in the name of Democracy, not realizing that Pyle would do just that.