US Dollar Tests Pre-Christmas Highs as Safe-Haven Demand Fades

The US Dollar has moved back toward its pre-Christmas highs, supported by a mild increase in safe-haven demand following recent political developments in Venezuela. However, upside momentum appears limited as Asian currencies strengthen and broader financial markets remain relatively calm.

According to Scotiabank strategists, the dollar’s recovery has been gradual rather than decisive. With holiday trading volumes fading, investor attention is now shifting toward a packed week of high-impact US economic data, which may play a larger role in shaping near-term price action.

Geopolitical Tensions Offer Temporary Support

Uncertainty surrounding Venezuela briefly lifted demand for the US Dollar, as traders sought safety amid geopolitical risk. This helped push the Dollar Index closer to levels last seen before Christmas. Still, signs of fatigue have emerged, with the index struggling to extend gains beyond the December 19 peak.

Market participants appear cautious about assigning lasting strength to geopolitics alone. As liquidity improves after the holidays, upcoming US data releases are expected to take priority over headline-driven moves.

Asian FX Strength Limits Dollar Upside

One factor restraining further dollar gains is the steady performance of Asian currencies. The Japanese Yen has edged higher, reflecting modest safe-haven demand, but also broader strength across the region. The Chinese yuan has been a key driver, pushing through the 7.00 level to its strongest point in more than two years.

This regional resilience could weigh on the US Dollar in the near term and may carry greater significance for its medium-term direction if the trend persists.

Markets Remain Calm Despite Headlines

Despite the dramatic nature of recent events, the wider market response has been muted. Global equities are mostly higher, bond markets are slightly firmer, and oil prices have seen little change. Gold prices have edged up, reflecting mild defensive positioning.

Scotiabank notes that unless conditions deteriorate meaningfully, the market impact of developments in Venezuela may fade quickly. For now, traders appear more focused on economic fundamentals than geopolitical risk.

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