The US Dollar rose due to holiday positioning and a Venezuelan oil blockade by Trump, despite a slowing labour market suggesting potential Fed easing in 2026. Dollar gains are predicted to stall near the upper 98s without new catalysts, with speculation over the next Fed chair adding uncertainty, according to Scotiabank officials.
Markets are adjusting amid holiday considerations, with USD experiencing haven demand due to Trump’s Venezuela blockade. Oil and gold prices have strengthened, and global stocks are modestly up, while Treasurys are weakening.
Labour Market Slowdown
The labour market slowdown hints that the Fed might ease policy sooner and more aggressively than anticipated for 2026. Without additional catalysts, DXY gains may halt in the upper 98/low 99 range, with discussions ongoing about the Fed maintaining distance from the White House’s influence.
Reports suggest ‘pushback’ against Hassett’s potential Fed chair nomination, affecting online betting trends and favouring Warsh instead. Warsh, with a reputation as a policy hawk, could potentially cause US yields and the USD to rise. Hassett’s nomination may pose a risk for both the USD and Treasurys.
The US Dollar is seeing some short-term strength as we head into the holidays, partly due to the new oil blockade on Venezuela. However, we see this as a temporary move, especially after the latest Bureau of Labor Statistics report showed non-farm payrolls adding a weaker-than-expected 95,000 jobs in November 2025. This labor market data supports our view that the Federal Reserve may need to cut rates more aggressively next year.
With the Dollar Index approaching the upper 98 to low 99 resistance zone, this strength may not last without new reasons for it to climb. We think this could be a good level to look at selling into rallies or purchasing put options on USD-related instruments. Looking back, we saw a similar setup in late 2019, where dollar strength eventually gave way once markets fully priced in a more dovish Fed.
Venezuelan Oil Blockade Impact
The Venezuela oil blockade has provided a clear boost to energy prices, with WTI crude jumping over 5% this week to trade around $85 a barrel. This geopolitical tension directly impacts supply, making call options on crude oil for the first quarter of 2026 an interesting play. Any escalation could push prices even higher, creating significant upside.
The uncertainty around the next Fed chair nomination is creating a clear binary risk for the dollar. A hawkish pick like Warsh could send yields and the dollar higher, while a dovish choice like Hassett would likely weaken them. This environment is ideal for volatility-based trades, such as using straddles on currency ETFs or futures, to capitalize on the sharp move that will likely follow the announcement.
