Monetary Matters with Jack Farley The Core of Dollar Weakness | George Saravelos, Deutsche Bank's Head of FX Research, on Growth Differentials, Fed Rate Cuts, and 4% U.S. Current Account as Key Threshold For USD Declines
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Oct 22, 2025 George Saravelos, Global Head of FX Research at Deutsche Bank, shares insights into the currency market, focusing on the recent dollar weakness linked to narrowing growth differentials between the U.S. and other economies. He discusses how emerging markets influence FX dynamics and the impact of Fed rate cuts on dollar strength. Saravelos also examines the correlation between the dollar and equities, the factors driving flows in currency markets, and highlights opportunities in emerging market currencies. A deep dive into the complex world of foreign exchange!
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Growth Differential Drives Dollar Moves
- The dollar's decline is largely driven by a narrowing US versus rest-of-world growth differential.
- If that gap stays narrow, the dollar's weakness can persist for months to years.
Three Pillars Of Medium-Term Dollar Direction
- Three key drivers of medium-term dollar direction are growth differentials, relative US yields, and the US current account.
- Deutsche Bank flags a ~4% US current account threshold beyond which the dollar struggles materially.
Short-Term Yields Set Hedging Costs
- Short-term yield ranking drives the cost of hedging and therefore medium-term FX dynamics.
- When US short-term yields drop from top-tier, hedging costs fall and foreign investors reduce unhedged dollar exposure, pressuring the dollar.