Deutsche Bank turns bearish on the dollar, expecting EUR/USD to break 1.20 as Fed policy lags more hawkish ECB and BoE amid easing Iran risk and shifting energy dynamics.
Summary:
- Deutsche Bank sees broad USD weakness, EUR/USD targeting a break above 1.20
- Fed expected to stay on hold while ECB/BoE lean more hawkish
- Iran war risk seen peaking, reducing USD safe-haven support
- Energy shock hits US consumers harder vs Asia fiscal cushioning
- Macquarie flags potential shift to negative USD–oil correlation
The US dollar is facing mounting downside risks, with Deutsche Bank turning increasingly bearish and forecasting a move to new cycle lows, alongside an eventual break of EUR/USD above 1.20.
According to strategist George Saravelos, several structural and cyclical forces are aligning against the greenback. A key driver is the view that geopolitical risks tied to the Iran war may be peaking, reducing the dollar’s traditional safe-haven appeal. At the same time, the currency’s yield advantage is eroding, with the Federal Reserve expected to keep rates on hold this year while other major central banks continue tightening.
This divergence is particularly important for FX markets. The European Central Bank and the Bank of England are seen as facing more persistent inflation pressures, driven in part by energy price pass-through from disruptions linked to the Strait of Hormuz. As a result, both are more likely to maintain a hawkish bias relative to the Fed, which remains more balanced between inflation and growth risks.
Deutsche Bank also highlights a relative growth headwind for the US, noting that American consumers are likely to bear a larger income hit from higher energy costs compared with Asian economies, where fiscal support is cushioning the shock. In parallel, there are early signs of a gradual shift in global oil trade away from the dollar and towards alternative currencies such as the Chinese yuan.
Supporting the bearish USD view, Macquarie strategists argue that the dollar’s historically positive correlation with oil prices could flip
