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Deutsche Bank says the dollar is headed for its worst stretch in more than a decade. The warning came from the bank’s research team this week, saying a “major downtrend” is underway that will drag the dollar down to levels not seen since 2014.

This forecast came in a note by strategists George Saravelos and Tim Baker, who pinned the blame on growing distrust in US leadership, a spike in global fiscal spending, and fallout from President Donald Trump’s trade policy.

The warning followed a rough start to the week for the US currency. The dollar dropped to a 16-month low, and the Bloomberg Dollar Spot Index fell almost 4% in April. That puts it on track for the worst monthly performance in over two years.

“The pre-conditions are now in place for the beginning of a major dollar downtrend,” George and Tim wrote. They said recent events had reshaped their outlook and now expect the EUR/USD rate to enter a long-lasting fall that could pull the dollar into a deep slump.

EUR/USD price chart. Source: TradingView

Trump’s trade policies push investors out of US assets

George and Tim said investors are pulling out of US assets because of rising trade tension and a reassessment of America’s role on the global stage. They linked this to Trump’s tariffs, which have made the US a less attractive place to park capital. 

They added that other nations are responding with fiscal stimulus plans, which are giving investors more reasons to put their money outside the US

The euro is one of the biggest winners. It’s already gained more than 5% this month and has now broken through $1.15. Deutsche Bank expects the euro to reach $1.30 by the end of 2027, which is far above the $1.15 median forecast in a recent Bloomberg poll. That target hasn’t been seen in over a decade.

The yen is also moving. George and Tim now see it strengthening to 115 per dollar. That would make it the strongest it’s been since 2022. Just last month, the bank had predicted it would hover around 125, so the change in tone is sharp.

The team described it as the start of a slow and steady withdrawal from US markets. They believe the twin deficits — trade and budget — are making the dollar more vulnerable. They also said America’s long-running edge as the world’s dominant economy is fading.

“The decades-long period of US exceptionalism has already started to erode,” they wrote. The pair warned of “extreme uncertainty and rapidly changing policy norms” and said the risk of “market dislocations and regime breaks” is now high.

Confidence crisis hits as capital flows realign globally

This view lines up with what Kamakshya Trivedi, head of FX and emerging-market strategy at Goldman Sachs, said earlier this week on Bloomberg TV. He called the dollar weakness “here to stay.”

George, who also serves as Deutsche Bank’s global head of FX strategy, expanded on that in a note from April 3. He said, “We are in the midst of dramatic regime change in markets.”

He added that they were growing “increasingly concerned that the dollar is at risk of a broader confidence crisis.” In George’s view, foreign exchange moves are starting to behave less like normal market adjustments and more like panic-driven changes.

He warned that basic currency fundamentals might no longer matter as much. “Our overall message is that there is a risk that major changes in capital flow allocations take over from currency fundamentals and that FX moves become disorderly,” he wrote.

Late Wednesday into Thursday, the dollar managed to crawl off the floor. But it wasn’t because the US economy suddenly got stronger. The rebound came after Trump backed off plans to fire Federal Reserve Chair Jerome Powell and softened his stance on the trade fight with China. That change in tone calmed some nerves and gave the dollar a small bounce.

Still, no one in the market is pretending the dollar is fixed. After dipping below 140 yen earlier in the week, the dollar rose back to 142.75 yen by Thursday. Traders say the recovery happened right at a technical support level that had been closely watched for weeks.

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