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Deutsche Bank's George Saravelos highlights the precarious position of a twin deficit country, emphasizing its reliance on external support. He suggests that such nations are vulnerable and must navigate their economic challenges with caution, as they depend on the goodwill of foreign investors.
The Pound to Dollar exchange rate struggled to maintain levels above 1.3300, with UBS suggesting potential pullbacks below 1.32 due to global tariff de-escalation. Weak US consumer confidence and rising inflation expectations are fueling stagflation fears, which may further weaken the dollar. Meanwhile, hopes for improved UK-EU relations could support the Pound, with upcoming UK economic data expected to be pivotal for its direction.
Deutsche Bank's George Saravelos warns of a declining market appetite for funding the US's twin deficits, as 30-year yields hit 5%. He notes that rising fiscal deficits, driven by consumer demand, contradict efforts to reduce the trade deficit, leading to potential vulnerabilities for the dollar and US bond market. With slowing inflows and increased foreign ownership of US assets, a reckoning for the dollar may be imminent.
Deutsche Bank's George Saravelos warns of a declining market appetite for funding the US's twin deficits, as rising fiscal deficits contradict efforts to lower the trade deficit. He highlights the risks for the dollar and US bond market, suggesting that a reckoning may occur if foreign financing wanes, potentially leading to dollar weakness. The situation is exacerbated by high foreign ownership of US assets and extreme valuations, indicating a need for the US to address its imbalances to avoid a disorderly correction.
Deutsche Bank's analysis indicates that recent U.S. tariff agreements with the UK and China set a range for "Trump tariffs," with a lower limit of 10% and an upper limit of 30%. The U.S. and UK have agreed to maintain reciprocal 10% tariffs while reducing auto tariffs, while the 30% tariff on China reflects the largest trade imbalance. U.S. Commerce Secretary Howard Lutnick noted that while the base tariff won't drop below 10%, there may be flexibility for specific countries.
Foreign investors are currently on a "buyers' strike" regarding US assets, despite a recent market recovery, according to Deutsche Bank AG. George Saravelos, the bank's head of FX strategy, analyzed fund flows from overseas into US stocks and bonds to assess this trend.
Deutsche Bank has reported a significant decline in foreign investment in U.S. assets, particularly in bonds and equities, coinciding with the increase in tariffs announced by President Trump. The bank's analysis indicates a marked cessation of inflows from foreign investors, with consistent selling observed in U.S. markets over the past two months, despite a recent recovery in asset prices. Data from nearly 400 large ETFs and EPFR supports this trend, highlighting a sharp halt in equity buying and aggressive bond selling by foreign investors.
Deutsche Bank warns of a potential USD collapse due to tariffs and geopolitical shifts, predicting a significant decline in the dollar's value. As the USD weakens, Bitcoin is expected to rise as a safe-haven asset, with analysts noting a decoupling from tech stocks and a growing demand for decentralized value stores amid increasing political instability. High tariffs and potential aggressive rate cuts by the Federal Reserve could further exacerbate inflation and economic challenges, leading investors to seek refuge in Bitcoin and other alternative assets.
Deutsche Bank predicts a dollar bear market, forecasting the Euro and British Pound to strengthen against the Dollar, with targets of 1.30 for EUR/USD and 1.45 for GBP/USD. The shift in global fundamentals, including increased German spending, is expected to favor Eurozone assets, while the Pound may decline against the Euro due to relative growth dynamics. Pantheon Macroeconomics adjusts its forecasts, raising GBP/USD expectations while lowering GBP/EUR projections amid concerns over U.S. economic policies and Federal Reserve independence.
Deutsche Bank warns that the dollar is entering a significant downtrend, potentially reaching its weakest level in 11 years due to growing distrust in US leadership and rising global fiscal spending. The euro is expected to strengthen to $1.30 by 2027, while the yen may rise to 115 per dollar. Analysts highlight a shift in capital flows away from US assets, driven by trade tensions and a reassessment of America's global economic role.
George Saravelos
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