Geopolitical calm weakens early USD strength
Just 48 hours after the United States military operation in Venezuela, the currency market shows limited residual impact. Monday’s initial flight to dollar safety proved short-lived, as early signs of dialogue between the United States and Venezuelan Vice President Delcy Rodríguez have reduced the perceived likelihood of further military escalation. According to ING FX strategist Francesco Pesole, the market is recalibrating its geopolitical risk outlook.
ING analysts view the short-term impact of Venezuela’s developments on the US Dollar as neutral to slightly positive. While geopolitical risk has risen, there are no major implications for the United States economy or the oil market. In the medium term, however, if markets begin to price in increased oil supply, crude prices could decline — potentially weighing on the dollar.
The strong performance of equities on Monday — despite elevated geopolitical risk — was a key factor in unwinding earlier USD gains. Economic data also contributed:
The ISM Manufacturing PMI dropped below 48 in December, marking its fourth consecutive monthly decline and the lowest reading since October 2024.
The backlog of orders fell to 45.8, suggesting inventory build-up and potential pressure on employment in the coming months.
These figures point to persistent weakness in the US manufacturing sector and reinforce expectations for a cautious monetary stance.
Despite the rapid reversal in safe-haven demand, ING maintains a modestly bullish bias for the dollar in the near term. Seasonal factors typically support USD performance in January. However, the market’s calm stance on geopolitical risks leaves risk assets and high-beta currencies vulnerable to renewed tensions — both in Latin America and potentially in Greenland.