Deutsche Bank analysts expect that a Democratic majority in the US Congress and Trump's willingness to cooperate will reduce the risk premium and support the euro.
Analysts at Deutsche Bank believe that the combination of a Democratic majority in Congress and President Trump's willingness to cooperate with the opposition will help reduce political risks. In their opinion, this will lead to a decrease in the risk premium and limit the adoption of extreme political decisions.
Over the past two days, Trump has stated that there is no immediate threat of an attack on Iran and acknowledged the impact of the conflict on the election results. At the same time, oil supplies through the Middle East have noticeably recovered, but the market is still pricing in a significant premium for a possible new escalation.
The bank cites the US debt ceiling as the main source of domestic uncertainty. The restriction could become critical as early as the second quarter of next year. Republicans plan to raise the ceiling through the budget reconciliation procedure in the coming weeks.
A successful resolution of the issue will remove some uncertainty in fiscal policy and avoid protracted negotiations with the Democrat-controlled Congress on other topics, including the development of artificial intelligence. At the same time, uncertainty around AI is likely to persist.
Deutsche Bank believes that these political changes are contributing to the formation of a bottom in the euro/dollar pair. The reduction in the premium for energy and global risks, combined with an increase in risks associated with AI, should weaken the dollar. An additional negative factor for the American currency will be the possible inability to raise the debt ceiling this year.