Deutsche Bank has raised concerns over a possible erosion of trust in the US currency amid escalating trade tensions

Deutsche Bank has issued a warning that a deepening crisis of confidence in the US dollar may be unfolding. This follows US President Donald Trump's announcement of sweeping new tariffs, which have rattled financial markets and intensified fears of a global trade war.

In a note to clients on Thursday cited by Reuters, George Saravelos, global head of foreign exchange research at the German financial giant, said that major changes in capital flows could destabilize currency markets.

"Our overall message is that there is a risk that major shifts in capital flow allocations take over from currency fundamentals and that FX [foreign exchange market] moves become disorderly," he wrote.

The US dollar has dropped sharply this week, falling more than 1.5% against both the euro and the Japanese yen and over 1% against the British pound. The declines come in the wake of Trump's decision to impose tariffs, ranging from 10% to 50%, on a broad range of imports from dozens of countries. Heightening fears of a global trade war have reportedly spurred investors to seek safe-haven assets.

Saravelos cautioned that a prolonged erosion of trust in the dollar could have far-reaching consequences, particularly for the eurozone, posing challenges to the European Central Bank (ECB).

"The last thing the ECB wants is an externally imposed disinflationary shock from a loss in dollar confidence and a sharp appreciation in the euro on top of tariffs," he said.

The ECB has reportedly voiced concerns that the US trade measures could disrupt global economic cooperation, destabilize inflation expectations, and force monetary policy recalibration.

The fallout from the tariffs has been swift. Stock markets have tumbled worldwide, oil prices have dropped, and bond yields have retreated as investors brace for slower economic growth. Meanwhile, assets seen as safe havens-including gold, German bunds, and the Swiss franc-have all seen an increase in demand.

Other financial institutions, including JPMorgan and Fitch, have issued similar warnings, the Financial Times and Reuters report, estimating that the tariffs could reduce US GDP growth by up to 1.5% and potentially tip other major economies into recession.

(RT.com)