LIVE MARKETS-Pre-conditions in place for major dollar downtrend - DB

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PRE-CONDITIONS IN PLACE FOR MAJOR DOLLAR DOWNTREND - DB

Currency strategists at Deutsche Bank have completely revamped their medium-term FX forecasts, and are now looking for the dollar to weaken significantly over the medium-term.

The shift in U.S. trade policy, pivot in German fiscal policy and significant reassessment of U.S. geopolitical leadership are cited for their change in stance.

"Our view on all these factors is that the pre-conditions are now in place for the beginning of a major dollar downtrend," said George Saravelos, head of foreign exchange research at Deutsche Bank.

DB now sees the euro appreciating closer to $1.30 against the dollar over the remainder of the decade, versus its current standing of about $1.14.

The euro EUR=EBS has been a surprising winner since Trump announced his tariff plans on April 2, rising about 6%, when most had expected the U.S. dollar to reign. The dollar index =USD is down about 5% since "Liberation Day".

At the core of Deutsche Bank's dollar bear market thesis are three assessments, Saravelos says.

1/ A reduced desire by the rest of the world to fund growing twin deficits in the U.S.

2/ A peak and gradual unwind in elevated U.S. asset holdings

3/ A greater willingness to deploy domestic fiscal space to support growth and consumption outside of the U.S.

(Samuel Indyk)

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