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Deutsche Bank AG is warning of a structural downward trend in the dollar in the coming years, which will push the US currency to its lowest level in a decade against the euro.
Strategists George Saravelos and Tim Baker said the negative effects of US tariffs, combined with Germany's fiscal stimulus and a reassessment of Washington's role on the international stage, will push investors to dump US assets and lower the dollar, as reported by Bloomberg.
The dollar fell to a 16-month low this week as heightened uncertainty around US policy raised questions about its status as a global reserve currency.
The Bloomberg Dollar Spot Index has fallen nearly 4% in April, heading for its worst month in two years.
"The conditions for the start of a significant dollar downtrend are now in place," Deutsche Bank research strategists wrote in a note.
"Given the historical developments of recent months, our EUR/USD forecasts now predict that the dollar will enter a long-term downtrend," they warn.
The bank now forecasts the euro will rise to $1.30 by the end of 2027, a level last seen in 2014 and well above the median forecast in a Bloomberg survey of $1.15. Deutsche Bank also forecasts the yen will rise to 115 per dollar, its highest level since 2022. That compares with the bank’s previous forecasts of $1.15 and 125 yen per dollar, respectively, just over a month ago.
The euro is expected to benefit from "safe haven flows" and reserve managers looking to invest more in Europe, strategists said.
The common currency has risen more than 5% this month, surpassing $1.15 this week.
Saravelos and Baker said U.S. President Donald Trump's trade policies are reducing foreign investors' interest in financing the country's twin deficits. This is leading to a gradual withdrawal of U.S. assets that have grown in recent years and encouraging other countries to increase fiscal spending to support domestic growth and consumption.
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