Media: Deutsche Bank sees risk of capital rebalancing in US–Europe rift

Trade threats issued by US President Donald Trump against European governments over Greenland could prompt Europe to reconsider its exposure to US assets, a shift that would support the euro, according to a strategist at Deutsche Bank AG, quoted by foreign media.

Europe is the largest external financier of the United States, with European countries holding approximately $8 trillion in US bonds and equities—nearly double the combined holdings of the rest of the world. This assessment was outlined by George Saravelos, Deutsche Bank’s global head of foreign-exchange research, in a note to clients published on Sunday.

Saravelos argued that amid what he described as an existential disruption to the geoeconomic stability of the Western alliance, Europe’s continued willingness to play this role is increasingly uncertain. “Developments over the last few days have the potential to further encourage dollar rebalancing,” he said, referring to the possibility of reduced European investment in US assets.

Trump’s newly announced tariffs targeting European countries in connection with Greenland could also act as a catalyst for greater political cohesion within Europe, Saravelos noted. That dynamic suggests that any near-term weakness in the euro against the dollar may prove temporary.

Although the euro opened lower against the dollar on Monday, it later reversed course, rising 0.2% on the day to $1.1619 as of 10:47 a.m. Singapore time. At the same time, futures linked to both US and European equity indices declined.

Saravelos said the main issue to monitor in the coming days is whether the European Union activates its anti-coercion instrument. According to a person close to French President Emmanuel Macron, who spoke on condition of anonymity in line with government rules, Macron plans to request that the mechanism be triggered.

“With the US net international investment position at record negative extremes, the mutual interdependence of European-US financial markets has never been higher,” Saravelos said. He added that any weaponisation of capital flows, rather than trade measures, would be far more disruptive to global markets.

By Tamilla Hasanova