Deutsche Bank Challenges Dollar Breakout Expectations Amid Resilient Global Growth

Deutsche Bank has questioned the dollar's staying power in the face of a strengthening Euro, citing three key reasons to challenge the growing expectation of a sustained Dollar breakout. According to Deutsche Bank, the current exchange rate environment is not consistent with US exceptionalism, as global data surprises remain at year highs, China has announced further stimulus, and European PMIs are consistent with above-trend GDP growth.

The bank also argues that expectations for Federal Reserve tightening already look generous, and that further increases in US bond yields are more likely to reflect compensation for longer-term risks rather than additional policy tightening. This makes them less supportive of the Dollar.

Additionally, Deutsche Bank sees improving Middle East oil flows as consistent with prices closer to $90 a barrel by year-end, which would ease energy-related price pressures and reduce the dollar's attractiveness.

The bank's 1.17 year-end forecast for EUR/USD implies a recovery of roughly 4% from the latest rate, but this is dependent on a reversal of the Euro's recent losses, as the break below 1.13 has challenged its range call.