Deutsche Bank on Thursday issued a warning about a potential crisis of confidence in the U.S. dollar, noting that significant shifts in capital flow allocations could disrupt the fundamentals of currency, leading to disorderly movements in foreign exchange (FX) rates.
Deutsche Bank’s George Saravelos detailed the risk in a note. He stated, "Our overall message is that there is a risk that major shifts in capital flow allocations take over from currency fundamentals and that FX moves become disorderly."
Saravelos also mentioned the European Central Bank (ECB) in his note, saying that the last thing the ECB would want is an externally imposed disinflationary shock due to a loss in dollar confidence.
This, coupled with a sharp appreciation in the euro on top of tariffs, could create an unfavorable situation for the ECB.
