Dollar Retreats From Haven Gains After Weak Manufacturing Data

(Bloomberg) — The dollar pulled back from its strongest level in two weeks after a reading of US manufacturing activity shrank last month by the most since 2024, wiping out gains seen after the US capture of Venezuela’s President Nicolás Maduro.

The Bloomberg Dollar Spot Index fell about 0.1% as of 4:00 p.m. in New York. Earlier, the measure advanced to its strongest mark since Dec. 22 following the US action against Venezuela, prompting investors to consider the fallout to currencies linked to global oil and commodity markets. The Mexican peso fell in the immediate aftermath but recovered in later trading. The Canadian dollar lagged major peers.

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In the US, the Institute for Supply Management’s manufacturing index edged down to 47.9 from 48.2, according to data released Monday. The measure has been below 50, which indicates contraction, for 10 straight months.

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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.

Oil rose as investors weighed the fallout from the capture of Maduro and the wider impact on oil-market geopolitics. The euro edged higher to $1.1727; the Canadian dollar fell about 0.2% to 1.3764 per US dollar.

“This is speculation at this stage, but if the toppling of Maduro leads to a secured US oil supply and weakness for China, then US macro dominance is possible, and we could see dollar and stock market strength in tandem,” said Kathleen Brooks, research director at XTB.

Still, the broader market response doesn’t resemble the typical flight to safety that follows a geopolitical shock. The weekend developments are a “key test” for gauging the currency’s haven status, Morgan Stanley strategists including David Adams wrote in a note.

The latest reading of positioning in the currency derivatives markets, published by the Commodity Futures Trading Commission on Monday for the week ended Dec. 30 and aggregated by Bloomberg, shows that speculative traders are short the dollar by about $10.5 billion — the most bearish sentiment since July.

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LatAm Jitters

The Mexican peso weakened as much as 0.7% to 18.04 pesos per dollar early on Monday before paring most of its losses. 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 could also suffer. Trump said the nation’s President Gustavo Petro — a frequent Trump critic who denounced the weekend raid — has to “watch” himself.

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.

“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.”

–With assistance from Vinícius Andrade, Anya Andrianova and Carter Johnson.

(Updates market pricing, adds commentary from XTB in 8th paragraoph and atest CFTC positioning data in 10th paragraph.)

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