DeutscheBankResearchGlobalForeign ExchangeDateFX Blog13 November 2022The dollar's peak is "in"The dollar on Friday experienced its largest two day drop since 2008. Is the moveGeorge Saravelosjustified? Yes, Would we fade it? No.Strategist+44-20-754-79118We have written before that the most important driver of the dollar this year hasbeen a rising global safe haven premium on multiple fronts. The Fed's relentlesspush towards tightening and fears of US hard landing; China's uncompromisingpursuit of zero COVID and continued downgrade of growth expectations; thepersistent negative newsflow around the Russia Ukraine war, including the risk ofthe use of unconventional weapons. Over Thursday and Friday, we had materialinformation on all three risks.First, US inflation surprised lower, which led our economists to downgrade theirinflation outlook for the first time this year. Crucially, US interest rate volatilityexpectations collapsed signaling a sharp reduction in what we have previouslytermed "Volcker risk". Second, China's Politburo on Friday released updatedguidelines on COVID management indicating a clear shift towards a ~living withCOVID approach, likely to accelerate from the spring of next year. Our Chinaeconomists are accordingly revising their growth expectations higher. Finally.Russia on Friday completed an orderly withdrawal from the strategically importantsupply to Europe or indeed validating earlierfears around potential counterattacksvia unconventional warfare. Add to this the materially warmer European weather,and the tail risk around a disorderly European winter has sharply receded.Of course, none of the above developments give the all clear on global inflation andgeopolitical risks. But what they do achieve is a remarkable simultaneouscompression of the risk premium that has driven dollar strength throughout thisyear. The market has been building such a large long USD cash allocation throughthe year, that the risks seem skewed towards further dollar weakness to close theyear.What about the medium-term implications? The question we find ourselves askingis whether China zero COVID risk, European energy risk and American Volcker riskcan all return combined to take back the dollar to its multiyear highs. Givendevelopments this week, the bar for this seems very high. The newsflow hasmaterially increased our conviction that the high in the dollar is in for this cycle. Thisstill leaves open the question of whether the dollar peak will be V or L-shaped./F LDeutsche Bank AG2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHERDETAILS.