The US Dollar has increased due to holiday behaviors and a Venezuelan oil blockade set by Trump. However, a slowing labor market indicates that the Federal Reserve might ease its policies by 2026. Analysts at Scotiabank suggest that Dollar gains could stall around the upper 98s unless new factors emerge. There is also uncertainty surrounding the next Fed chair, which adds to the volatility. Markets are adjusting as we approach the holidays. The USD is in demand as a safe haven, thanks to the blockade on Venezuelan oil. Prices for oil and gold have gone up, and global stocks have seen slight increases, while Treasurys are weakening.

Labor Market Slowdown

The slowdown in the labor market suggests the Fed might ease its policies sooner and more strongly than expected in 2026. Without new catalysts, gains for the dollar index (DXY) could stop in the upper 98 to low 99 range. There are ongoing talks about the Fed staying away from political pressure from the White House. There are reports of resistance to Hassett’s potential nomination as Fed chair, impacting online betting trends and leaning towards Warsh instead. Warsh is known for a stricter policy approach and could lead to higher US yields and a stronger dollar. Hassett’s nomination could be risky for both the dollar and Treasurys. As we near the holidays, the US Dollar shows short-term strength, partly due to the new oil blockade on Venezuela. Still, we view this as a temporary spike. The recent Bureau of Labor Statistics report revealed that non-farm payrolls added only 95,000 jobs in November 2025, which strengthens our belief that the Federal Reserve may need to cut rates more aggressively next year. With the Dollar Index nearing the upper 98 to low 99 resistance zone, this strength may not continue without new reasons. We see this as a potential opportunity to sell during rallies or look into put options on USD-related assets. A similar situation occurred in late 2019 when dollar strength eventually faded after the markets adjusted for a more dovish Fed.

Venezuelan Oil Blockade Impact

The blockade on Venezuelan oil has significantly boosted energy prices, with WTI crude oil rising over 5% this week to around $85 per barrel. This geopolitical issue directly affects supply, making call options on crude oil for the first quarter of 2026 a tempting opportunity. Any further escalation could push prices even higher. The uncertainty regarding the next Fed chair also presents a clear risk for the dollar. Choosing a hawkish candidate like Warsh could raise yields and strengthen the dollar, while a dovish choice like Hassett might weaken them. This is a perfect environment for volatility-based trades, such as using straddles on currency ETFs or futures, to take advantage of the strong movements likely to follow the announcement. Create your live VT Markets account and start trading now.

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