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Bearish Dollar Thesis Faces Reset on Iran War Says Deutsche Bank - Pound Sterling Live

17 Mar 2026, 07:00 UTC
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At a Glance

Deutsche Bank's recent commentary suggests that the bullish outlook on the US dollar may need reassessment due to geopolitical tensions arising from the Iran conflict. Their bearish dollar thesis is grounded in concerns that escalating conflicts can impact global risk sentiment, prompting capital flows away from the US dollar. The bank posits that as geopolitical tensions rise, market participants might favor currencies viewed as safer assets, particularly the euro and yen. This shift could diminish demand for the dollar, ultimately affecting its valuation against major currencies.

Key Takeaways

  • 01Deutsche Bank sees geopolitical tensions as a catalyst for a stronger bearish dollar narrative.
  • 02The shift in investor sentiment may favor currencies viewed as safe havens.
  • 03Our consensus target of 1.075 reflects a balanced view amidst evolving geopolitical risks.

Full Analysis

What the desk is arguing

Deutsche Bank is indicating a potential reset in the bearish dollar narrative due to the intensified conflict in Iran, suggesting market participants may begin to favor alternative currencies. The research highlights that geopolitical instability tends to lead investors towards perceived safe havens, which could erode US dollar dominance.

Moreover, the implications of such a shift underscore a broader market move that could arise from heightened uncertainties. If tensions escalate further, the dollar may face additional headwinds against currencies like the euro and yen, which historically attract safe-haven flows in times of global instability.

Where it sits in our coverage

Our consensus target for the dollar against the euro is currently set at 1.075, resting within a range of 1.04 to 1.12. This aligns with Deutsche Bank's warning, which suggests that the dollar's outlook could deteriorate if geopolitical tensions continue to escalate.

In our per-firm coverage, we see various views on the dollar's trajectory, including these notable targets:

How other firms see it

The current sentiment among other firms shows mixed responses to Deutsche Bank's bearish outlook. Goldman Sachs maintains a cautious stance, aligning somewhat with Deutsche Bank's position on a weakening dollar, whereas BoFA remains contrary, expecting the dollar to hold its value against a backdrop of global tensions.

  • Goldman Sachs: cautious stance on USD weakness
  • BoFA: target reflects confidence in USD stability
  • RBC: neutral on USD with a slight bullish bias

Market Implications

If geopolitical risks mount, we could see a significant shift in capital flows, resulting in downward pressure on the dollar. Market participants should be prepared for increased volatility across G10 currencies as these dynamics unfold.

From the original

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Related speeches

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ING THINKMay 6, 2026

FX Daily: Remarkable resilience of risk assets

The desk interprets the recent uptick in risk asset purchases and dollar selling as a response to perceived progress in US-Iran negotiations, indicating a shift in investor sentiment. Per the full note [source], this development contrasts sharply with earlier fears of a potential oil market tipping point that could lead to a significant spike in crude prices. With no major economic events on the horizon, the focus remains on how these geopolitical dynamics will influence currency movements, particularly the USD's potential downside. The consensus among firms suggests a cautious outlook, with targets reflecting a range of expectations for the USD's trajectory.

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MUFG EMEAMUFG EMEAJun 13, 2025

Will Middle East tensions trigger a reversal of the weakening USD trend?

The desk posits that escalating tensions in the Middle East, particularly between Israel and Iran, could catalyze a reversal of the recent USD weakening trend. Per the full note from MUFG EMEA, the USD has recently faced significant selling pressure, hitting year-to-date lows ahead of the upcoming FOMC meeting. The potential for geopolitical instability to bolster the USD is underscored by historical patterns where safe-haven currencies typically appreciate during times of conflict. As traders assess the implications of these developments, the USD's trajectory will likely be influenced by both market sentiment and central bank policy shifts.

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USD downside risks persist in most Middle East scenarios

The desk sees continued downside risks for the US dollar, particularly in light of recent geopolitical developments in the Middle East that have eased some tensions. Per the full note from MUFG EMEA, this shift has contributed to a weakening of the dollar, which traders should monitor closely. The commentary also highlights key insights from central bank meetings this week, underscoring the Fed's cautious stance amidst these evolving dynamics. With no significant calendar events in the next month, the focus will likely remain on market reactions to geopolitical developments and central bank signals.

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