The EUR/USD pair continues its losses, trading around the 1.1710 level during the Asian hours on Monday. The pair is losing ground as the US dollar (USD) rises on safe-haven demand, driven by a renewed rise in geopolitical risks following the US arrest of Venezuelan President Nicolas Maduro.
CNN reported over the weekend that US President Donald Trump’s administration had ordered a “large-scale strike against Venezuela” and arrested President Maduro to face charges, without congressional approval. Trump added that the United States will oversee Venezuela until a safe, orderly, and wise transition takes place.
However, the US dollar’s upside could be limited by expectations of two additional Fed rate cuts in 2026. Markets are bracing for US President Donald Trump to nominate a new Fed head to replace Jerome Powell when his term ends in May, a move that could push monetary policy towards lower interest rates.
The euro could find support against the US dollar as monetary policy paths between the European Central Bank (ECB) and the US Federal Reserve (Fed) diverge. The European Central Bank kept interest rates unchanged in December 2025 and indicated they were likely to remain on hold for an extended period. European Central Bank President Christine Lagarde noted that growing uncertainty makes it difficult to provide clear forward guidance on future policy decisions.
(This story was corrected on January 5 at 02:55 GMT to say, on the first point, that EUR/USD is falling due to safe-haven demand rather than rising.)
Frequently asked questions about risk sentiment
In the world of financial terminology, the two widely used terms “risk appetite” and “risk aversion” refer to the level of risk that investors are willing to take over the indicated period. In a “risk on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk off” market, investors begin to “play safe” because they are concerned about the future, and thus buy assets that are less risky and more guaranteed to generate a return, even if it is relatively modest.
Typically, during periods of “risk on”, stock markets rise, and most commodities – with the exception of gold – will also rise in value because they benefit from positive growth expectations. The currencies of countries exporting heavy goods are strengthening due to increased demand, and cryptocurrencies are rising. In a “risk off” market, bonds – especially major government bonds – rise, gold shines, and safe-haven currencies like the Japanese yen, Swiss franc and US dollar all benefit.
The Australian Dollar (AUD), Canadian Dollar (CAD), New Zealand Dollar (NZD) and minor foreign currencies such as the Ruble (RUB) and South African Rand (ZAR) tend to appreciate in ‘risk’ markets. This is because the economies of these currencies rely heavily on commodity exports for growth, and commodities tend to rise in price during periods of risk. This is because investors expect increased demand for raw materials in the future due to increased economic activity.
The major currencies that tend to rise during “risk off” periods are the US Dollar (USD), the Japanese Yen (JPY), and the Swiss Franc (CHF). The US dollar, because it is the world’s reserve currency, and because in times of crises investors buy US government debt, which is considered safe because the world’s largest economy is unlikely to default. The reason for the yen is the increased demand for Japanese government bonds, because a high percentage of them are held by domestic investors who are unlikely to get rid of them – even in a crisis. The Swiss franc, because strict Swiss banking laws provide investors with enhanced capital protection.
