The dollar secured net gains on Monday with the Pound to Dollar exchange rate (GBP/USD) dipping to 1.3415 before a slight correction.
The dollar secured net gains from global developments following President Trump’s move to attack the Venezuelan regime and capture President Maduro with European currencies losing ground.
Although the dollar secured tentative support, the main impact was a fresh surge in precious metals prices with only limited moves in oil prices.
ING sees scope for near-term dollar support; “Given the uncertainty about how the next few days will pan out, investors will probably prefer the liquidity of the dollar.”
MUFG is not convinced there will be a significant impact on currencies; “The pick-up in geopolitical risk has helped to support in the price of gold after the sharp correction lower at the end of last year. Overall, we are not expecting the developments in Venezuela to have significant implications for our FX outlook in 2026 consistent with the initial muted market impact.”
ING also looked at the potential medium-term implications; “Were the US to get dragged into a messy set of operations in several Latin currencies, investors could take a dimmer view of its drag on the fiscal side and the dollar.”
It noted the risk of wider dollar selling; “2025 did not see much evidence of de-dollarisation; it was hedging that caused the 10% drop in the dollar, not the outright sale of US assets. However, a more belligerent and more interventionist US foreign policy could trigger a renewed focus on US asset sales by BRICS+ aligned regimes.”
US economic developments will also be watched closely, especially given the potential impact on interest rate expectations.
At this stage, markets are pricing in less than a 20% chance of a further rate cut at the January meeting, but there is still an important element of uncertainty as some Fed members will push for further cuts.
Juan Perez, director of trading at Monex USA commented; “It’s going to be a time to actually do a lot of assessment, we won’t have the Fed meeting until the end of the month, but there’s no consensus.”
He added; “This past U.S. government shutdown was unprecedented and inconceivably long, so it really affected the way that data has been taken, has been interpreted, and has been able to really be gauged or taken as fully accurate.”
In this context, US data releases will be watched very closely as distortions start to fade.
The US jobs report is scheduled on Friday. Consensus forecasts are for an increase in non-farm payrolls of around 50,000 with the unemployment rate edging lower to 4.5% from the 4-year high of 4.6%.
A firm report would make it very difficult for the Fed to cut rates again this month and potentially support the US currency.
