Dollar gives back safe-haven bid as markets fade Venezuela risk

Dollar gives back safe-haven bid

The tape wasted no time telling us what mattered and what didn’t. Venezuela hit the headlines hard over the weekend, but by the time Asia handed the baton to Europe, markets were already leaning forward, not looking back. The old line about geopolitical risk having short legs is still making the rounds, but this one barely made it out of the blocks. The outcome was oil-friendly, credit-friendly, and critically non-disruptive to global liquidity. For traders, that is the only scoreboard that matters.

Yes, the events themselves were more than a skirmish. A single decisive strike removed a long-standing source of macro and credit decay. While the legal and procedural debates will linger, markets are not paid to referee constitutional law. They are paid to price forward risk. On that score, the aftertaste was surprisingly clean. By Monday, the price action looked indistinguishable from any other risk on session where narratives are reverse engineered after the fact. If nothing had happened over the weekend, the charts would have told a very similar story. This is 2026 announcing itself early, with the United States once again setting the global tempo.

The most obvious transmission channel was oil, and even there, the move was more shrug than shock. Spot dipped, rebounded, and settled into a range that suggested forecasters saw no reason to redraw their medium-term maps. The market quickly came to view Venezuela as a potential source of supply normalization rather than disruption. That framing matters. It explains why equities ran, why credit tightened, and why even Venezuelan bonds found buyers. From a cold credit lens, the probability of default edged lower, not higher. A chronic overhang was reduced, and markets treated that as a small but meaningful upgrade to the future state of play.

Monday was unambiguously risk-on, and today is no different; it is typically negative for the dollar. Equity markets ripped again, and that alone tells you how investors are positioned. This was not defensive rotation or cautious dip buying. It was allocation. Capital behaving as if liquidity remains abundant and episodic geopolitical noise is something to be faded, not feared. The dollar did catch a brief safety bid early on, but it lasted about half a session. Once equities asserted themselves and US data softened at the margin, that bid evaporated.

Rates traders are watching this through a different prism. The rates market is being asked to price a year where policy signals, politics, energy supply, and labor dynamics are all colliding at once. Venezuela barely registered here beyond the oil channel, and even that faded quickly. The bigger focus for FX traders is squarely on US data, with the week building toward payrolls.

Consensus is hovering around 60k for jobs. Run that through the Powell filter and it effectively prints flat. But the market knows better than to fixate on the headline. The unemployment rate is the real anchor, and an easing back toward 4.5 percent would be read as resilience rather than deterioration, especially given current immigration dynamics. Soft payrolls paired with a stable labour market is a combination the market can tolerate. It buys the Fed time and keeps risk assets breathing.

Jobless claims deserve more respect than they typically get. They are not a survey, not sentiment, not an exercise in seasonal adjustment. They are the real thing. And they continue to say that the labour market, remarkably, is holding together after the chaos of 2025. That reality tempers the bearish impulse and keeps the dollar supported on dips, even if it no longer enjoys a durable safe-haven premium.

The dollar story since the weekend has been one of fast repricing and faster forgetting. The initial bid faded as early signs of dialogue emerged and the perceived probability of another near term US military action dropped. In the near term, the risk to Venezuela is neutral to slightly positive for the dollar. There is more geopolitical risk in the air, but no material hit to US growth or energy security. Look further out, and the skew flips. If markets gain conviction that Venezuelan supply will return in size, crude prices drift lower, and the dollar loses one of its marginal supports.

That said, January seasonality still leans in the dollar’s favor, and complacency is visible across risk. Markets are wearing geopolitical noise lightly, which leaves risk assets and high beta currencies exposed if the narrative turns abruptly. That asymmetry is why a modest tactical dollar bullish bias still makes sense, even as the broader picture remains balanced.

Europe remains largely a sideshow in this setup. Thin post-holiday liquidity will do its usual work, but a small downtick in inflation does not alter the broader calculus. The ECB remains anchored by its hawks, and it would take a far more material growth reassessment to reopen the debate about cuts this year. For now, the euro is a passenger, driven primarily by the dollar leg. An anchor in the high 1.16s to low 1.17s feels reasonable unless a new geopolitical front opens closer to home.

Canada, by contrast, is feeling this more directly. The prospect of increased Venezuelan heavy crude supply is a clear negative for Canadian barrels that had been enjoying scarcity premiums. The widening of heavy differentials indicates that the market is quietly adjusting its assumptions. That leaves the Canadian dollar in an uncomfortable position, caught between commodity repricing and a global market that is still very comfortable taking on FX risk elsewhere.

Step back and the message is consistent across assets. Markets are eager to move on. Venezuela was absorbed, digested, and largely discounted within a single session. Attention has already rotated back to data, liquidity, and the next policy signal. If this is how 2026 is starting, traders would do well to stay nimble, respect the tape, and remember that in this market, narratives fade quickly, but positioning lingers.