Deutsche Bank sounds the alarm for the third time: the US dollar has met the prerequisites for a big dump.

Source: Jin10

For some time now, Deutsche Bank's global foreign exchange research head George Saravelos has been sounding the alarm on the dollar issue, and now he has raised those concerns to a new level.

At the beginning of March, as some traders were preparing for the short-term inflation impact that the U.S. tariffs might bring, a strategist from Deutsche Bank warned that the dollar could lose its reputation as a safe-haven currency due to the declining correlation between the dollar and stocks. Then, three weeks ago, Saravelos pointed out the risk of a confidence crisis facing the dollar.

Now, he and strategist colleague Tim Baker have made a longer-term prediction, ultimately stating that the reputation of the United States has been damaged, and this damage may be difficult to repair quickly.

In a report released on Thursday, Saravellos and Baker outlined a long list of obstacles the dollar has faced since the beginning of this year, including the largest trade policy shift in the United States in a century, as well as the most significant reassessment of American geopolitical leadership since World War II.

They wrote: "Our view on all these factors is that the prerequisites for the US dollar to start a significant downward trend are now in place."

Currently, investors seem to have found a breather from the volatility caused by tariffs and are pinning their hopes on the so-called "Trump put options," which suggest that Trump could continue to soften his trade policy stance to support the financial markets. On Thursday, the three major U.S. stock indices rose for the third consecutive trading day, while at the same time, due to widespread demand for U.S. government bonds, prices of U.S. government securities increased.

The US dollar continues to weaken against other major currencies. The Intercontinental Exchange (ICE) Dollar Index, which measures the dollar against six major currencies, fell 0.6% on Thursday to 99.27, reaching a new low for the past three years, with a cumulative decline of nearly 8% this year. According to the timeline given by US Treasury Secretary Scott Bessent two days ago, some of the problems facing the dollar may be due to the fact that any comprehensive trade agreement between the US and China could take two to three years to reach.

Deutsche Bank's report states: "Our forecast is that the era of the dollar 'rising long-term' will come to an end, and during the remainder of this decade, the euro will appreciate against the dollar, approaching the purchasing power parity exchange rate level of 1.30." Since 2014, the euro to dollar exchange rate has not reached this level.

Behind the bearish view on the dollar, some of the bank's strategists' thoughts are that the willingness of other countries to finance the expanding twin deficits of the United States has decreased. Saravelos and Beck wrote, "In a world of extreme uncertainty and rapidly changing policy norms, the risks of market chaos and breaking the rules remain very high."