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George Saravelos, head of foreign exchange research at Deutsche Bank, warned that the U.S. dollar's status as a reserve currency faces significant risk if the Federal Reserve withdraws its currency swap arrangements. He highlighted that even without action from the Fed, doubts about these arrangements could drive global de-dollarization, marking a critical moment since World War II.
Deutsche Bank warns that the Federal Reserve's potential withdrawal of its liquidity backstop could jeopardize the dollar's status as a reserve currency, marking the most significant risk since World War II. Concerns about the reliability of Fed swap lines may prompt global de-dollarization, especially among Western allies, as countries like China and Russia continue to reduce their reliance on the US financial system. The Fed's role as the world's lender of last resort is crucial, and any hesitation to provide liquidity could lead to increased demand for dollars and destabilize US asset markets.
Deutsche Bank warns that the Federal Reserve's potential withdrawal of its liquidity backstop could jeopardize the dollar's status as a reserve currency, marking a significant risk since World War II. Informal discussions among European officials suggest concerns over the reliability of Fed swap lines, which allow global institutions to borrow dollars during financial stress. Such fears could drive a shift towards de-dollarisation among America's Western allies, especially if the Trump administration influences the Fed's actions.
European investors face significant losses as the dollar's traditional safe-haven status erodes, with unhedged U.S. assets at risk amid declining confidence in "American exceptionalism." As funds may shift back to Europe and emerging markets, the potential for a dollar sell-off looms, with $14 trillion in unhedged U.S. assets vulnerable to a 5% reduction in foreign holdings. The changing dynamics in global capital flows signal a critical reassessment of investment strategies.
Deutsche Bank warns that the U.S. dollar may lose its safe-haven status due to rapid geopolitical changes. George Saravelos, the bank's FX strategy head, noted a 0.7% drop in the dollar and highlighted a declining correlation with risk assets and a rising current account deficit. Increased EU defense spending in response to U.S. policy shifts further contributes to this potential trend.
Deutsche Bank has raised concerns about the diminishing supremacy of the US dollar as a safe-haven currency, highlighting recent global shifts that challenge its long-standing dominance. George Saravelos, the bank's FX strategy head, noted that despite US tariffs, the dollar has not strengthened as expected, indicating a potential fracture in confidence due to geopolitical realignments and changing security priorities in Europe.
Deutsche Bank's George Saravelos attributes the recent weakening of the Dollar to a tightening U.S. fiscal stance and rising policy uncertainty, particularly regarding trade. He notes that tariffs act as a consumer tax, hindering growth without offsetting measures from the administration. Additionally, the Dollar's safe-haven status is at risk, as evidenced by a declining correlation with stocks and a significant current account deficit, suggesting a potential broader trend of weakness ahead.
Deutsche Bank warns that the US dollar may soon lose its "safe haven status" amid rapid global economic shifts and rising de-dollarization efforts. The dollar's recent decline, exacerbated by Trump's tariff regime and retaliatory measures from other nations, signals a potential long-term weakening trend. As countries seek alternatives to the dollar, its dominance is increasingly challenged.
The euro has remained above parity with the U.S. dollar since September 2022, but rising tensions with Russia and potential U.S. tariffs under President-elect Trump could threaten this stability. Economists predict the euro may return to parity by 2025, influenced by U.S. monetary policy and global trade uncertainties. The outlook remains volatile, with factors such as tariffs and economic responses from Europe and China playing crucial roles in the euro"s future trajectory.
Gold prices have dropped by $220 per troy ounce, or 8%, since late October, reflecting a shift from haven assets to riskier investments amid the prospect of a second Trump presidency. This decline comes as China"s central bank has not increased its gold reserves for six months, and significant outflows from US gold ETFs exceed $1.4 billion. Analysts note that market concerns over US credit risk have diminished, impacting gold"s momentum.
George Saravelos
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