USD: Geopolitics supporting the dollar
The US dollar was in demand yesterday on renewed geopolitical tensions involving the much‑eyed Greenland. The greenback had pared back some early‑week gains as Delcy Rodrigues, Venezuela’s acting president, swiftly took power after Maduro’s capture, which reduced the likelihood of further US intervention there.
European leaders then issued a joint statement supporting Denmark as President Trump amplified threats to seize Greenland (part of the kingdom of Denmark), insisting that the US must work with them to defend the region. The development is significant because it keeps alive the prospect of further US involvement, particularly given that Greenland falls under NATO’s defence umbrella.
The dollar strengthened as safe‑haven demand picked up, but markets may also be interpreting the toppling of Maduro and the continued threats toward Greenland as a sign of Washington’s commitment to securing additional oil supply. This reinforces perceptions of US macro dominance and adds a second layer of support for the greenback.
Today the focus shifts to data, with ADP, JOLTS, and ISM services PMI due, followed by NFP on Friday. Although market‑moving power is slowly consolidating in the unemployment rate, which offers a clearer read on labour‑market conditions given Trump’s immigration policy agenda and its impact on labour supply.
The dollar index (DXY) has found a floor near 98.200, with a chance of reclaiming Monday’s highs (98.861), if today’s data surprise to the upside. A return to the 99 zone will likely require a solid jobs report on Friday.
EUR: Euro moves made in America
The euro has entered 2026 on the back foot, down over 0.4% against the USD and 0.7% versus GBP. After ranking among 2025’s top performers, it has quickly become one of the weakest major currencies as a surge in geopolitical risk forces traders to re‑position for the new US policy landscape. The Venezuela flare‑up may yet prove a one‑off, but if it marks the start of a broader geopolitical chain reaction, the euro’s early‑year slide could be the beginning of a more persistent struggle.
Consensus coming into 2026 centred on a continued euro rally — supported by Germany’s fiscal stimulus and, more importantly, by narrowing rate spreads as the European Central Bank (ECB) was seen to be done easing while the Fed prepared for multiple cuts. However, the possibility of another ECB rate cut cannot be ruled out entirely especially if the euro-area inflation print surprises to the downside today. Moreover, EUR/USD is becoming increasingly driven by the US side of the story, and if US growth or Fed expectations reprice in a more hawkish direction, those rate differentials could stay wide.
A tightening link between EUR/USD and relative rate differentials underlines just how crucial upcoming US data will be for the pair in the months ahead. The 30‑day correlation between US–German two‑year yields and spot EUR/USD has climbed to its strongest level since late 2021, reinforcing the idea that spreads — not sentiment — are doing the heavy lifting. Weekend developments in Venezuela show that geopolitics still matters, but as monetary policy diverges through 2026, it’s rate spreads that will ultimately steer the world’s most‑traded currency pair.
From a technical perspective, a break below the 100‑ and 50‑day moving averages would open the door to a deeper pullback, potentially dragging EUR/USD toward the 200‑day moving average in the mid‑$1.15 area over the coming weeks.
GBP: Pound punches through 3-month highs
The British pound has opened 2026 on the front foot, rising against most major peers. GBP/USD has pushed above $1.35 to its highest level in more than three months, while GBP/EUR has broken out of its sideways trading pattern to reach its strongest level since early September.
Some of this strength reflects a shift in the policy channel, with expectations for BoE rate cuts easing slightly since December. But the move also coincides with a geopolitics‑driven rotation in global equities, where the Venezuela shock has boosted demand for cyclicals and defence stocks — a tilt that has put UK assets back in favour and lifted the FTSE 250 to its highest level since 2022.
Even so, sterling’s resilience looks difficult to sustain. UK inflation is set to continue falling and the BoE is still likely to cut rates at least twice more this year, leaving the policy backdrop as a persistent headwind. That combination leaves GBP vulnerable once the current bout of resilience fades.
Technicals also warn the rally in GBP/EUR in particular looks stretched. The 200-day moving average is a clear resistance level and the Relative Strength Index (RSI) has hit 70, a level that typically marks overbought territory. That pattern suggests the latest leg higher in GBP/EUR is looking stretched and that a near‑term pullback is increasingly likely as momentum cools.
Market snapshot
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Calendar: January 05-09
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
