Dollar risks losing safe haven status, says Deutsche Bank
The dollar is at risk of losing its traditional status as a safe haven for global investors following a tariff backlash, a European banking giant has warned.
German-based Deutsche Bank said: “This needs to be acknowledged as a possibility” after the speed and scale of geopolitical uncertainty accelerated the dollar’s turmoil.
The concerns were shared in a note to clients by the bank’s global head of FX strategy George Saravelos, first reported by Bloomberg.
The note said: “It is hard to over-estimate the scale of change taking place in global economic and geopolitical relations in a matter of days.”
US stock market Dow Jones opened on a lull on Tuesday, losing as much as 664 points and continuing from Monday’s slump.
This followed confirmation that President Trump’s 25 per cent tariffs on goods from Mexico and Canada had come into effect.
A further 10 per cent was slapped onto Chinese products, ballooning China’s total import tax to 20 per cent.
Dollar not strengthening materially
A broad measure of the dollar fell as much as 0.7 per cent as the fallout from tariffs set in.
Saravelos said a stand out from the market’s response was the dollar “not strengthening materially”.
“We would not have expected these market moves at the start of the year.”
Mexican President Claudia Sheinbaum said on Tuesday there was “no justification for the tariffs” and retaliatory levies were in the works.
The nature of Mexico’s tariffs is set to be revealed on Sunday at a public event in Mexico City’s central plaza.
The partial delay of implementation may suggest a glimmer of hope in de-escalating the trade war – as opposed to Canada, whose retaliation was more immediate.
Canada announced a 25 per cent tariff on US goods, which would encompass appliances, household items and products such as orange juice, wine, spirits, beer and coffee.
Trump’s bullish attitude towards European defence spending has also helped to ramp up economic concerns.
“Two pillars of America’s role in the world are being fundamentally challenged: the US’s security backstop for Europe and the respect of rules-based free trade,” Saravelos said.
Deutsche Bank said last week that defence spending had caused it to drop its long-standing negative outlook on the euro.
Salarvelos said: “Bringing it all together we are starting to become more open-minded to the prospects of a broader weaker trend unfolding.”