The currency team at Deutsche Bank is out with a big call today, saying that the US dollar has peaked.
Analysts there argue that the newsflow on Thursday and Friday was materially negative for the US dollar and marks a top. The drivers for dollar strength this year were:
- Safe have flows
- Fed hiking
- China's uncompromising pursuit of covid zero
- Russia-Ukraine war
Last week, there were positive developments on all those fronts with the US inflation report, clear signs of China shifting to a 'living with covid' model and Russia retreating from Kherson.
Deutsche Bank emphasizes that none of the risks are gone but that they're the trigger for unwinding a crowded USD-long trade.
"None of the above developments give the all clear on global inflation and geopolitical risks. But what they do achieve is a remarkable simultaneous compression of the risk premium that has driven dollar strength throughout this year," writes FX strategist George Saravelos.
He ponders whether there will be a V-shaped or L-shaped dollar peak but saves the answer for next week when Deutsche Bank will release currency forecasts for 2023.
I spoke about a potential US dollar top on BNNBloomberg on Friday.
