Deutsche Bank issued a warning on Thursday about the potential for a confidence crisis in the U.S. dollar.
The bank suggested that major shifts in capital flow allocations could supersede currency fundamentals, leading to disorderly movements in currency values.
The U.S. dollar, which is the leading reserve currency globally, faced widespread selling pressure on Thursday. This was largely due to concerns about U.S. recession risks, fueled by President Donald Trump’s most recent tariff measures.
Deutsche Bank’s George Saravelos stated in a note that major shifts in capital flow allocations could take precedence over currency fundamentals. Consequently, this could cause foreign exchange movements to become disorderly.
He stressed that an accelerated decline in the dollar’s value would be unfavorable for global central banks.
Saravelos further elaborated that the European Central Bank (ECB) would not welcome an external disinflationary shock resulting from a loss of confidence in the dollar, coupled with a sharp appreciation in the euro due to tariffs.
He stated, "Expect pushback. We are in the midst of dramatic regime change in markets."
