So says Deutsche Bank in a client note, saying there are 2 key drivers that will decide where the US dollar goes over the next 2 years:
- the deterioration in the current account deficit
- whether or not the Fed will hike interest rates,
Deutsche Bank says the critical variable is
- the Fed: a central bank that remains purposefully behind the curve and endorses a controlled overshoot of inflation is likely to do significant damage to the dollar
- & thus demand for Treasuries may fall
DB add
- market expectations of the Fed hiking in 2022 are unlikely to be realised
- DB expects the Fed to be on hold into 2023
- forecast EUR/USD moving above 1.25
