The US Dollar has strengthened as the markets reacted to US military actions in Venezuela, with ISM Manufacturing PMI data expected later today. Over the weekend, US forces captured Venezuelan President Nicolás Maduro, causing geopolitical tensions to rise. The USD Index increased by nearly 0.3%, reaching its highest level in two weeks at 98.70. US stock index futures also saw an uptick, rising by 0.1% to 0.5%. In precious metals, gold rose 2%, trading around $4,420, and silver climbed over 3.5% to about $75.50.

Currency Market Overview

The EUR/USD remained low, trading below 1.1700, as European economic data approaches. The GBP/USD fell below 1.3450, with UK data releases on the horizon. Meanwhile, USD/JPY stayed steady around 157.00, as the Bank of Japan is expected to keep its interest rates unchanged. In the financial markets, “risk-on” describes a mood of optimism where investors buy riskier assets. In contrast, “risk-off” signals caution, leading investors to safer options. During “risk-on” periods, currencies like AUD, CAD, and NZD tend to rise due to their ties to commodities. Conversely, in “risk-off” situations, the US Dollar, Yen, and Swiss Franc often gain value for their stability. Due to the US military action in Venezuela, we are currently in a typical risk-off environment. This geopolitical shock has forced traders to seek safety, driving up the US Dollar. We anticipate volatility, with the VIX index expected to surpass 30, a level not reached since the regional banking stress in 2023.

Impact and Trading Strategy

The strength of the dollar is overshadowing recent market trends. Just last month, in December 2025, futures markets predicted a greater than 70% chance of further Federal Reserve rate cuts in the first quarter. However, this new event has completely altered that perspective. Traders might consider buying call options on the USD Index to take advantage of this rush to safety. The most immediate impact will be felt in energy markets, given that Venezuela is an OPEC member. We can expect WTI crude oil futures to rise above $100 a barrel this week, influencing energy stocks and related currencies. In late 2023, we saw a similar—but smaller—response to geopolitical tensions, when conflict in the Middle East caused oil prices to jump nearly 6% in one day. In the forex market, the increased demand for the dollar will likely hit commodity currencies the hardest. The Canadian dollar is particularly at risk due to its close connections with the US economy and heavy reliance on oil exports, making long USD/CAD positions appealing. Meanwhile, USD/JPY may remain stable, as the yen’s safe-haven appeal balances the dollar’s strength. Gold and silver are significantly benefiting from the ongoing uncertainty, serving as key hedges against geopolitical risks. Gold’s ascent toward $4,500 reflects widespread market fear. Traders should expect this trend to continue, considering call options on gold and silver ETFs to gain further exposure as the situation unfolds. Create your live VT Markets account and start trading now.

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