USD: Venezuela situation stabilizes – ING

US Military Action in Venezuela Leaves Limited Impact on Currency Markets

Just over two days after the US conducted a military operation in Venezuela, the currency markets have shown minimal lasting effects. The initial rush to the safety of the US dollar early Monday quickly faded. This reversal is largely attributed to early indications of talks between the US and Delcy Rodríguez, who has succeeded Maduro, which have eased concerns about the likelihood of another immediate US intervention, according to Francesco Pesole, FX analyst at ING.

US Dollar Pulls Back After Brief Surge

Pesole observes, "Our preliminary view is that Venezuela’s situation has a neutral to slightly supportive effect on the dollar in the short run—geopolitical tensions are higher, but there are no significant consequences for the US or the oil market. Looking further ahead, if markets become confident about increased oil supply, the dollar could face downward pressure as crude prices fall."

He adds, "Strong performance in equity markets yesterday, despite ongoing geopolitical uncertainty, was the main factor behind the reversal of the dollar’s earlier gains. Economic data also played a part: the US ISM manufacturing index slipped below 48 in December, marking its fourth straight monthly decline and reaching its lowest point since October 2024. Additionally, the order backlog dropped to 45.8, signaling the risk of inventory accumulation and possible job losses in the coming months."

"Although demand for the safe-haven US dollar quickly subsided, we still see a slight bias toward dollar strength in the near term. January’s seasonal trends are favorable, and with markets remaining relatively calm about geopolitical risks, both risk assets and high-beta currencies could be vulnerable if tensions flare up again, whether in Latin America or even Greenland."