Deutsche Bank has expressed concerns over a possible loss of confidence in the U.S dollar, citing escalating trade tensions and shifts in global capital flows as key risk factors.
The warning follows U.S President Donald Trump’s announcement of extensive new tariffs, which have unsettled financial markets and intensified fears of a global trade war.
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In a note to clients, George Saravelos, the bank’s Global Head of Foreign Exchange Research, cautioned that fundamental shifts in capital allocation could disrupt currency markets.
“Our overall message is that there is a risk that major shifts in capital flow allocations take over from currency fundamentals and that FX [foreign exchange] moves become disorderly,” he wrote, as cited by Reuters.
The U.S dollar has declined sharply this week, falling over 1.5% against both the Euro and the Japanese Yen, and more than 1% against the British Pound. The downturn follows the imposition of tariffs ranging from 10% to 50% on a wide range of imports from multiple countries, driving investors toward safe-haven assets.
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Potential Global Ramifications
Saravelos warned that a prolonged deterioration in confidence in the U.S dollar could have significant consequences, particularly for the EuroZone, complicating monetary policy for the European Central Bank (ECB).
“The last thing the ECB wants is an externally imposed disinflationary shock from a loss in dollar confidence and a sharp appreciation in the euro on top of tariffs,” he noted.
The ECB has reportedly raised concerns that U.S trade policies could disrupt global economic stability, distort inflation expectations, and necessitate adjustments to monetary policy.
Market Reactions and Economic Fallout
The financial fallout has been swift, with global stock markets tumbling, oil prices declining, and bond yields retreating as investors brace for a potential economic slowdown. Safe-haven assets, including gold, German Bunds, and the Swiss Franc, have all seen increased demand.
Other major financial institutions, including JPMorgan and Fitch, have issued similar warnings.
Reports from the Financial Times and Reuters estimate that the tariffs could reduce U.S GDP growth by as much as 1.5% and may push other major economies toward recession.
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