Deutsche Bank: Dollar Weakness to Persist as Euro Seen Gaining Ground

Germany’s Deutsche Bank signaled a continued weakening trend for the U.S. dollar, noting that the currency’s traditional strengths are losing momentum amid shifting dynamics in the global financial system.

In a report covering macroeconomics, markets, geopolitics, and technology, the bank said the dollar has failed to perform as a typical safe-haven asset during the recent conflict involving Iran. This, analysts argue, reflects a broader erosion in the dollar’s appeal as both a high-yield currency and a preferred vehicle for global growth.

According to Deutsche Bank, the geopolitical crisis has added pressure on the dollar, as countries across Asia and the Middle East increasingly draw on foreign exchange reserves and savings to offset rising energy costs. At the same time, there has been a noticeable acceleration in efforts to diversify reserves away from the dollar in favor of alternative currencies.

The report highlights a steady rise in the share of non-traditional reserve currencies over the past three years, signaling a gradual shift in the structure of the international monetary system, one that could dilute the dollar’s long-standing dominance.

Looking ahead, Deutsche Bank forecasts that the euro could strengthen to $1.25 against the dollar by the end of the year, supported by expectations of a faster pace of monetary tightening by the European Central Bank. This comes despite ongoing pressure on the eurozone economy from elevated energy prices.

The Japanese yen, meanwhile, is viewed as undervalued, with projections that the dollar could rech 150 yen by the end of 2026, largely due to the continued accommodative stance of the Bank of Japan.

China’s yuan is also expected to benefit from easing tensions with the United States and ongoing policy efforts to expand its global usage. Increased reliance on the currency in trade settlements, particularly in energy flows from the Middle East to Asia, could further support its position in international markets.

The bank’s assessment underscores a broader transition in global finance, where the dominance of the U.S. dollar is increasingly being questioned. While the currency remains central to the international system, evolving geopolitical and economic conditions appear to be reshaping investor sentiment and reserve strategies worldwide.