The value of the US dollar could potentially decline, leading to a potential increase in the Euro's value against it, with the forecast of $1.30 per Euro, according to Deutsche Bank.
Dollar Downturn Predicted: Deutsche Bank's Assessment
Here's the scoop on the latest currency buzz - Deutsche Bank predicts a significant drop in the U.S. dollar's value, becoming the starting point of an extended downturn.
Specialist George Saravelos of Deutsche Bank Research, based in London, states in a recent reassessment that the U.S. currency is on a structural downward trend due to Donald Trump's economic policies.
Why the shift? Well, since Trump took office, the U.S. dollar has suffered a substantial loss in value, with a six percent decrease against the euro in just the past three months. According to Deutsche Bank, this is merely the beginning, as they believe "the conditions for the start of a significant dollar downturn are now in place."
Good news for the euro then, as it is currently trading at 1.14 U.S. dollars, and Deutsche Bank expects it to reach 1.30 dollars in the medium term. This would be a return to its 2008 levels, when the euro was last valued at this rate before briefly reaching an all-time high of around 1.60 dollars.
The reasons for this significant change can be traced back to major shifts since January: increased efforts to change U.S. trade policy, a turnaround in German fiscal policy, and a reevaluation of U.S. geopolitical leadership.
These changes mark the end of an era in which the U.S. dollar was highly valued due to its dominant position in the global economy and its role as the leading currency and safe haven. With the Trump administration's policies causing significant uncertainty, the risk of market disruptions remains high.
If the euro strengthens against the dollar, the implications for Germany are important. Three potential impacts could be:
- Cheaper imports: Many raw materials like oil and gas are paid for in dollars, so a strong Euro would ensure more stable prices, reduce inflation, and allow for low interest rates.
- Less competitive exports: A strong Euro would make German goods more expensive in the U.S., potentially weakening market opportunities for German exporters in the significant U.S. market.
- Cheaper travel: Travel to the U.S. would become cheaper, although this could also affect the value of German tourism revenue in the U.S.
Three long-term reasons for a weaker dollar, according to Saravelos, are:
- Decreased foreign investor interest: The widening trade and budget deficits in the U.S. will lead to a peak and a gradual reduction of foreigners' inflated U.S. asset holdings.
- Increased willingness to utilize public spending and deficits to support growth and consumption outside the U.S.
- Political instability, deterring foreign capital flows due to unpredictable policy-making and a "crisis of confidence" in Treasurys and dollar-based assets.
With the Trump administration, predictability has indeed taken a backseat. "In a world of extreme uncertainty and rapidly changing political norms, the risk of market disruptions and regime changes remains high," writes Saravelos. "We will remain open to adjusting our forecasts given the magnitude of political upheavals."
- What if the euro strengthens even further against the dollar? Deutsche Bank's contentpass suggests it could reach 1.30 dollars in the medium term, a return to levels last seen in 2008.
- This strengthening of the euro could have significant implications for German business, particularly in terms of investing and trade. For instance, cheaper imports might be on the horizon, but less competitive exports could weaken market opportunities.
- Deutsche Bank's strengthening prediction for the euro is partially based on a decreased foreign investor interest in the U.S. due to the widening trade and budget deficits, increased public spending, and political instability under the Trump administration.
- In a world of heightened uncertainty and unpredictable policy-making, Saravelos warns that the risk of market disruptions and regime changes remains high. He emphasizes their readiness to adjust forecasts as political upheavals continue.
