Deutsche Bank's global foreign exchange strategist, George Saravelos, who previously drew criticism from Treasury Secretary Besant, has now further asserted that the dollar's status as a safe-haven asset is a misconception.
In January, Saravelos suggested that Europeans might sell their holdings of U.S. Treasuries following potential punitive tariffs from Trump on Europe, a remark that reportedly angered Besant. According to Besant, Deutsche Bank's CEO has distanced the institution from Saravelos's views. Nevertheless, Saravelos is now directly challenging the strength of the U.S. dollar.
Saravelos's analysis indicates that the relationship between the dollar index and the S&P 500 shows the dollar has not rebounded as expected during risk-off periods. He observed that the dollar and the S&P 500 have decoupled over the past year, and he explored the reasons behind this trend and its potential implications.
The core of Saravelos's argument is that U.S. equities have become riskier, primarily due to excessive concentration in the artificial intelligence sector and concerns about industry "cannibalization." In contrast, other regions benefiting from loose fiscal policies and low oil prices appear more attractive.
He posits that if the source of negative sentiment in equities originates within the U.S., "the dollar could very well decline alongside falling stock prices, similar to the pattern seen during the 2002 dot-com bubble." This observation holds true even from a long-term perspective dating back to the 1980s: once risks within the U.S. market itself increase, the dollar can no longer serve as a safe haven.
For Saravelos, the most critical factor influencing foreign exchange hedging decisions is this retrospective correlation between the dollar and U.S. stocks. If the dollar's appeal as a portfolio hedge diminishes, investors would have stronger incentives to reduce their dollar holdings.
Deutsche Bank has maintained a bearish outlook on the dollar for some time, arguing that the U.S.'s "exceptionalism" in terms of interest rate differentials, growth prospects, and its safe-haven reputation is fading. In the current environment, Saravelos finds currencies that benefit from moderate global growth dynamics more attractive, such as the Australian dollar, Scandinavian currencies, and emerging market currencies.
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