Regarding the dollar, in the short-run (days or weeks), it often benefits from geopolitical anxiety because it is a haven and a source of global liquidity, especially if fears increase about escalating regional tensions, the imposition of new sanctions, or the United States taking control of Venezuela. This effect may be limited if investors perceive the crisis as contained or limited and not altering the trajectory of US interest rates. In the long run (months or years), the dollar's upward or downward movement will be largely determined by two factors: the path of US interest rates and the strength of the US economy. If the crisis leads to a global slowdown and increases expectations of interest rate cuts, the dollar may subsequently weaken despite its safe-haven status. (Summary: A rapid rise in the dollar's exchange rate followed by a subsequent consolidation.)

 

As for the Japanese yen, in the short run, and given its status as a haven during periods of stress, the yen may strengthen against many currencies if investors become more willing to reduce risk. In the long run, however, the yen's strength or weakness depends heavily on the interest rate differential between Japan and other countries. If Japanese interest rates remain significantly lower, this could limit the yen's appreciation, even if it is considered a haven. (Summary: The yen may rise during shocks, but its sustained rise is not guaranteed without a change in interest rate policy.)

 

The euro is not considered a strong haven like the dollar or the yen (it is not backed by a single country; the euro represents multiple economies with different monetary policies, there is no single European finance ministry, and risks vary within the eurozone), but it is not an emerging market currency either. If the dollar rises in the short run due to anxiety, the euro will temporarily weaken against the dollar. In the long run, the euro's exchange rate will depend on European growth rates, European interest rate decisions, and the impact of energy and trade on their economies. However, if tensions escalate and the cost of risk rises globally, the euro could be negatively impacted, as investors tend to favor the dollar during periods of instability.

 

Gold typically benefits in the short run from fear and expectations of interest rate cuts, and it has already risen in market hedging as geopolitical risks related to Venezuela have intensified. In the long run, however, continued gold gains require prolonged periods of high tension, a slowdown in the global economy that would drive interest rates down, or a significant increase in demand from central banks and investors for hedging. If the crisis subsides quickly, gold may return to its normal fluctuation pattern instead of a sustained upward trend.

 

As for oil, markets are unlikely to treat the event as a major oil shock, as Venezuela currently represents a limited share of global supply (less than 1 million barrels per day), despite possessing the world's largest proven oil reserves (303 billion barrels). Factors contributing to this are a lack of investment and technology, deteriorating infrastructure, and international sanctions. Even in the best-case scenario, increasing production will take time. Therefore, the impact of the event on currencies via the oil channel is likely to remain limited. As for the impact on Jordan, which is significant due to the dinar's peg to the dollar, a stronger dollar globally will automatically strengthen the dinar against the euro and the yen (making imports from Europe and Japan relatively cheaper). However, the competitiveness of exports and tourism from Europe and Japan may be affected because the dinar will become more expensive for them.

 

The stability of the Jordanian dinar, which has been tied to the US dollar since 1995, depends on maintaining confidence and the size of the central bank's reserves (currently at a record high of $25 billion) as a safety net. The central bank also holds more than 72 tons of gold.

 

In conclusion, in the short run, the dollar, yen, and gold will benefit from the uncertainty, while the euro may weaken against the dollar. In the long run, if the crisis does not escalate, interest rates and growth will drive the direction of these variables more than political news.

 

The writer is a former Minister of State for Economic Affairs in Jordan.