Just over 48 hours after the US military operation in Venezuela, there are few signs left in the currency market. The flight to the safety of the dollar early Monday was short-lived, as early signs of dialogue between the United States and Maduro’s successor, Delcy Rodriguez, reduced the perceived likelihood of another imminent US military action in the near future, noted ING FX analyst Francisco Pesole.
The US dollar retreats from its early gains
“Our early assessment of Venezuela’s impact on the dollar is neutral to slightly positive in the near term – higher geopolitical risks, but no significant implications for the US and the oil market – and leans to the downside in the medium term, if markets find enough conviction to price in increased oil supplies and push crude oil prices lower.”
“Yesterday’s good performance in stocks, despite geopolitical risks, was in our view the main driver of the pullback from earlier dollar gains; data also played a role. The US ISM Manufacturing Index fell below 48 in December, marking a fourth straight monthly decline and the lowest level since October 2024. Order backlogs also continued to shrink at 45.8, indicating a risk of inventory build-up and a hit to potential job opportunities in the coming months.”
“Despite a rapid decline in safe-haven US dollar demand yesterday, we remain modestly biased towards a stronger dollar in the near term. Seasonality is positive in January, and markets’ optimistic stance on geopolitics leaves risk assets and high-beta currencies vulnerable to a re-escalation, whether in Latin America or perhaps in Greenland.”
