Forex runs to safe havens

The rise in geopolitical risks against the backdrop of the kidnapping of Venezuelan President Nicolas Maduro by the US has increased demand for the US dollar as a safe-haven currency. Coupled with expectations of a prolonged pause in the Fed's monetary expansion cycle and political turmoil in Europe, this has allowed EURUSD bears to mount a counterattack and push the pair below 1.17.

The futures market estimates the chances of a cut in the federal funds rate at the January FOMC meeting at 17% and 48% at the March meeting. The Fed intends to sit on the sidelines until at least spring. This plays into the hands of the US dollar. It is strengthening against major world currencies amid a wide spread between US bonds and their European and Asian counterparts.

Moreover, there are signs of trouble brewing in Europe. Keir Starmer's approval rating has fallen to its lowest level among all British prime ministers in the last half-century. It is worse than that of Liz Truss, who is known for her quick resignation due to turmoil in the financial markets. As a result, the Labour Party is discussing a change of leader. Keir Starmer warns that his removal from power will plunge the country into complete political chaos and open the door to Nigel Farage, who is leading in the polls, for a new prime minister.

The rise in political risks in Britain is putting pressure not only on the pound but also on other European currencies. Following GBPUSD, EURUSD is falling off a cliff.

Politics and geopolitics are forcing investors to seek safe havens. The best option appears to be gold, which shone in 2025. The precious metal managed to rebound from local lows thanks to a spectacular operation by US special forces in Venezuela. Investors successfully bought up the dip in the XAUUSD pair. However, the market may quickly come to the conclusion that events in Latin America will have a muted impact on both the global economy and oil. Venezuela, with its production falling from 3.5 million bpd in the 1970s to 1 million bpd today, is only the 18th largest producer of black gold in the world.

If investors decide that the regime change in Caracas will not lead to turmoil, they will dump safe-haven assets. At the same time, pressure on gold may come from the strengthening of the US dollar amid a prolonged pause in the Fed's cycle of monetary policy easing.

The Australian dollar appears to be the favourite thanks to expectations of a key rate hike by the Reserve Bank and the Chinese economy's adaptation to US tariffs.