Deutsche Bank said it was remaining bearish on the U.S. dollar, as key macro supports were fading.
It noted that the U.S. current account deficit has been financed by official flows from developing Asia and private flows from Europe and Japan.
“These trends are set to reverse,” the investment bank said in a note on Monday.
U.S. bonds have become less attractive to European and Asian investors amid higher hedging costs and Asian central banks were reducing their reserves, the bank said. Additionally, foreign positioning in U.S. equities was already overweight, it said.
“The current account deficit is set to widen over the medium term, putting depreciation pressure on the dollar,” it said. The “combination of current account deficit with reduced inflows can only be reconciled via a weaker dollar.”
It tipped the euro to rise to US$1.28 and the dollar to fall to 105 against the yen.
The euro was fetching US$1.2390 at 10:01 P.M. SGT on Monday, according to DZH data; the dollar was fetching 107.212 yen.