Dollar has lost correlation with S&P 500 and is no longer a defensive asset - Deutsche Bank

The U.S. dollar no longer acts as a protective asset haven for investors: over the past year, the correlation between it and the main U.S. stock index S&P 500 has disappeared, said Deutsche Bank strategist George Saravelos. In January, his remarks displeased U.S. Treasury Department head Scott Bessent, after which the head of Deutsche Bank had to publicly dissociate himself from the employee's position.

Deutsche Bank global currency strategist George Saravelos questioned the status of the "powerful" dollar, MarketWatch writes . He pointed out that instead of strengthening during periods of investors' risk-aversion, the dollar chart now shows a different dynamic, having lost correlation with the S&P 500 index.

The U.S. stock market has become more risky - mainly due to the concentration of a large amount of investment in the artificial intelligence sector and concerns about domestic competition, Saravelos wrote. At the same time, the rest of the world is benefiting from softer fiscal policy and low oil prices, which makes it look relatively attractive, the Deutsche Bank strategist said.

If the source of any negativity in the stock market will be inside the U.S., "it is quite possible that the dollar will fall simultaneously with the decline in stock prices - as it already happened during the dot-com crash in 2002," MarketWatch quoted Saravelos as saying. According to the strategist, this observation is confirmed over longer time frames, starting in the 1980s: if the U.S. market becomes more risky, the dollar no longer serves as a protective asset. And if the U.S. currency loses its appeal as an element of portfolio protection, it only increases the incentive to reduce dollar exposure, he believes.

Deutsche Bank has maintained a "bearish" view on the dollar for some time now, as it believes it has lost its exceptional position in terms of yield, growth prospects and reputation as a safe-haven asset, MarketWatch notes. In the current situation, currencies benefiting from a relatively favorable global environment, such as the Australian dollar, look more attractive to Saravelos.

In January, during the annual World Economic Forum in Davos, Saravelos drew criticism from U.S. Treasury Secretary Scott Bessent. The strategist suggested that European investors could sell off their U.S. Treasury Department government bonds because of President Donald Trump's threat to impose duties. According to Bessent, the head of Deutsche Bank called him afterwards and said that the organization does not share Saravelos' opinion.

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