But does it mean anything for FX?
The story of the week also therefore makes it the story of the year so far. The United States’ capture of Venezuelan President Maduro is the hot topic, but does it hold any material impact to markets? Well, there was certainly some significant moves in FX during yesterday’s session, so let’s take a look at those and see if and how they relate back to this evolving story of US military intervention. The day started off with quality assets receiving a bid. A flight to relative safety saw the price of investment grade bonds rise modestly, with the Dollar mildly stronger alongside the Swiss Franc and gold.
That move ahead of and into the European market open is exactly what we might expect of an event that changes almost any geopolitical paradigm. A tick on that front then – the weekend’s actions in Venezuela likely kickstarted a modest risk-off tone ahead of the session open. However, the story that played out during the day led to much of that bid dissipating. In the case of the Dollar, any demand created by the rise in geopolitical risk was replaced by a focus on the domestic US economy as the session progressed with underwhelming ISM figures showing a 10th straight month of decline in manufacturing.
Whatever the Trump administration’s motives for intervention in Venezuela, there is clearly an implication for the oil market. There is also a risk to other left-leaning South American polities that they could be candidates for future military and political intervention. Regarding oil, the forecast for 2026/7 is already expected to be one of abundance for the natural resource which is keeping prices well contained. Supply from Venezuela has already become so constrained that the risk of a short-term supply shock would be easily absorbed by this market. As far as regional risks are concerned, we look to the MXN as a regional proxy and the lack of selling pressure in MXN crosses yesterday shows the market reflecting little to no increase in regional risk.
Discussion and Analysis by Charles Porter
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