Bank Discusses "The potential loss of USD safe-haven status."
The potential loss of the dollar's safe-haven status: We do not write this lightly. We highlight a few developments since the start of the year providing tentative signs in this direction. - George Concalves, Global Head of FX, DB
We have noted here recently that since Donald Trump has taken office, the dollar has actually weakened. There is clearly a buy -the-rumor and sell-the-news mindset going on.
The dollar along with stocks rose precipitously between Donald Trump's election and his inauguration. Since then stocks have remained buoyant but gold has continued to rally with a declining dollar.
One would argue that tariffs are bullish for the US dollar strength. And that would be a good argument. But now, we're seeing a weaker dollar despite everything that's unfolding.
Stepping away from the bigger picture and focusing on the macroeconomic: the dollar has strengthened because of tariff concerns for sure. But at some point the dollar will begin to weaken substantively because as tariffs do their work and weaken the global economy a softer dollar will be necessary to counterbalance that. Essentially tariffs slow the global economy and the Fed (absent fiscal reactions like tax cuts or stimulus/spending) will have to ease rates eventually.
We are not alone in this thinking. George Concalves, Global Head of FX at Deutsche Banks and quoted up top from a ZH premium article notes this as well. He sees some very specific breakdowns in (yet more) trusted FX correlations (like simultaneous weakness vs G7 and EM FX) that usually inform him of normative cyclical behavior. Now however, the (lack of) correlations signal change somewhat more secular in nature. This is not unlike how GoldFix first noticed the USD/Rate correlation breakdown vs Gold was also not an aberration waiting to snap back. It is interesting how George's own marcro-economic FX analysis is informing him of bigger things brewing underneath the surface.
Concalves ominously notes: There are times to be dismissive of the USD’s market reaction to events, but not today.
He then observes there are two mutually re-enforcing themes that have been building in recent weeks” surrounding the dollar’s net-net softer reaction to tariffs.
One of them is the potential loss of the dollar's safe-haven status.
He writes: “The speed and scale of global shifts is so rapid now that this needs to be acknowledged as a real possibility.”
Continues here
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