Dollar Gains, Peso Falls as Maduro Exit Fuels Geopolitical Risks

(Bloomberg) — The dollar hit its strongest level in two weeks after the US capture of Venezuela’s President Nicolás Maduro, while Mexico’s peso retreated amid the rising geopolitical tensions.

The Bloomberg Dollar Spot Index advanced as much as 0.3% to reach the highest since Dec. 22 as the greenback outperformed almost all major currencies. The peso was the biggest laggard, weakening the most since November before most other Latin American markets opened.

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With Maduro out after the shock weekend operation, US President Donald Trump said Washington plans to temporarily “run” Venezuela. The developments are simultaneously buoying the dollar and posing a headwind for currencies of other nations in the region that have clashed with Trump.

“US adventurism” is likely to pressure “currencies of left-leaning governments in the Western hemisphere,” said Chris Turner, Global Head of Markets at ING in London. He cited the Colombian peso as well as its Mexican counterpart, given the latter’s “relative liquidity and its use for proxy Latam risk.”

Global investors must now grapple with an uncertain outlook for both Venezuela and US foreign policy. Delcy Rodríguez, the acting president of Venezuela, asked the US to work with her country late on Sunday, striking a more conciliatory tone after her initial outrage at Maduro’s capture.

Investors responded on Monday with broad US dollar buying against other currencies. The euro fell 0.4% to $1.1672, on course for its biggest fall since October.

Still, the broader market response doesn’t resemble the typical flight to safety that follows a geopolitical shock.

While haven metals gold and silver rose, most major stock indexes climbed. The Swiss franc, another traditional haven currency, fell against both the dollar and euro. Emerging-market stocks were set for a record high.

The weekend developments are a “key test” for gauging the currency’s haven status, Morgan Stanley strategists including David Adams wrote in a note.

“We sense that investor conviction on the US dollar is low, and therefore how it responds to key events, both economic and geopolitical, has the capacity to generate a market narrative and thus sustainable price moves.”

LatAm Jitters

The Mexican peso was the worst performer among major currencies, weakening 0.7% to 18.03 pesos per dollar on Monday. The nation was among those that condemned the US military actions in Venezuela. Trump said Saturday that cartels are running Mexico and the US will “have to do something” about flows of drugs from the country.

Colombia’s peso is due to start trading later Monday. Trump said the nation’s President Gustavo Petro — a frequent Trump critic who also denounced the weekend raid — has to “watch” himself.

Read: Trump Warns Colombia in Threat to Other Drug-Producing Countries

Trump’s pledge to deploy US energy companies to Venezuela, which has the world’s largest oil reserves, could prompt a dip in crude prices if it revives the nation’s battered output. That may dent the currencies of producers such as Norway’s krone and the Canadian dollar.

At the same time, the initial move was limited given a US-led revival could be a years-long process costing upwards of $100 billion.

Gold, Silver Jump as Venezuela Tensions Add to Geopolitical Risk

Data in Focus

The Bloomberg dollar index is headed for its sixth consecutive gain, which would be its longest streak since July. Dollar traders are watching US economic reports this week that include inflation figures and non-farm payrolls data.

The currency’s advances before Monday were fueled by figures that showed applications for US unemployment benefits falling, bolstering confidence in the robustness of the jobs market.

“Developments in Venezuela point to a relatively quick closure rather than a prolonged military conflict,” said Christopher Wong, an analyst at Oversea-Chinese Banking Corp. in Singapore. “For the US dollar, data plays a key role this week, given a heavy flow of labor and survey-related prints.”

(Updates with additional comment, context throughout.)

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