Geopolitical reshaping of the currency market: the safe-haven attribute of the US dollar rekindled, and the divergence between the British pound and euro intensifies

The US dollar once again plays the role of a safe-haven asset amid geopolitical risks. On January 5th, driven by tense geopolitical situations in Venezuela and Iran, the dollar’s trend received a boost. Meanwhile, the performance of the British pound and the euro showed a clear divergence: the pound fell against the dollar but rose to a two-and-a-half-month high against the euro. Behind this complex exchange rate pattern, it reflects the different reactions of currency pairs to risk events and also hints at potential new shifts in the forex market in 2026.

Geopolitical Risks Drive Demand for USD as a Safe Haven

According to the latest reports, Monex Europe analysts pointed out that the safe-haven demand triggered by geopolitical tensions in Venezuela and Iran is the main driver behind the strengthening of the dollar. During such risk events, market participants tend to hold traditional safe-haven assets like the USD, leading to increased demand.

This logic has been validated multiple times in history. Whenever major geopolitical risks or economic uncertainties emerge globally, the dollar often benefits due to its high liquidity and the deepest markets.

Deep Reasons Behind the Divergence Between GBP and EUR

Why is the euro more vulnerable to shocks?

Analysts point out that the euro shows higher sensitivity to trade disruptions. This reflects the characteristics of the Eurozone economy: highly dependent on international trade, with geopolitical risks causing trade uncertainties that directly impact its economic outlook. In contrast, although the pound also faces upward pressure against the dollar, it shows relative strength against the euro, precisely because the euro bears greater pressure.

Domestic Political Risks in the UK

Although the GBP/EUR performance is relatively good, this advantage may only be temporary. Analysts believe that by 2026, the UK’s domestic political environment will still be unfavorable for economic growth and the long-term performance of the pound. This suggests that the rebound of the pound may lack fundamental support, and risks are accumulating.

New Forex Market Pattern in 2026

According to analysts, the euro may benefit from the Eurozone’s fiscal policies aimed at stimulating growth. This indicates that although the euro is under short-term pressure due to trade risks, in the medium term, if the Eurozone implements proactive fiscal policies, the euro could have a rebound opportunity. This stands in stark contrast to the political and economic difficulties faced by the pound.

The current forex landscape presents a clear “risk-opportunity” dichotomy: the dollar is strengthening due to safe-haven demand, the euro faces pressure from trade sensitivity but has medium-term potential with policy support, and the pound is caught in a short-term rebound with a bleak long-term outlook.

Summary

Geopolitical risks are reshaping the global forex map. The safe-haven attribute of the dollar has been reactivated, but whether this strength can be sustained depends on the evolution of geopolitical situations. The divergence between the pound and euro reflects different sensitivities of economies to risk events: the Eurozone is more vulnerable due to high trade dependence, while the UK faces dual pressures from political and economic factors. For market participants, understanding the fundamental logic behind these currencies is crucial, rather than just following short-term fluctuations. The direction of the forex market in 2026 will largely depend on the interaction between geopolitical developments and major economic policies.