The dollar has been sliding since President Donald Trump's inauguration. Since January, it's lost about 11% versus a basket of its peers.
But it doesn't look like the greenback will see a reversal of fortunes anytime soon, according to Deutsche Bank strategist George Saravelos.
"The dollar is in trouble," he argues in a recent note to clients, in part because of a couple of key changes that are negatives for the greenback.
The first change is that market still isn't pricing additional rate hikes from the Fed, which Saravelos calls "zombification."
Crucially, he's not talking about the possibility of a rate hike in 2017. What Saravelos is talking about here is the bigger picture, long-term uncertainty about the Fed's future decisions, which he says is likely to continue.
Currently, expectations are for just one rate hike through September 2018, Bloomberg's World Interest Rate Probability data shows. However, most of the FOMC will be different come 2018, so it's difficult to predict what that new group of people will do in terms of policy.
The second key change is that the drivers of the foreign exchange market are seeing a fundamental shift. Whereas the FX market used to be driven by monetary policy expectations, Saravelos argues it now appears to be driven by an adjustment to flow balances that have accumulated after the last few years of "unconventional" global monetary policy.
"Part of this imbalance is a structural underweight in European assets, which we have written about in the past," he said. "More broadly however, Americans are hugely underweight in their investment allocations to the rest of the world.
"The easiest way to demonstrate this is by looking at American buying of foreign assets," he added. "Over the last few years Americans have liquidated close to the entirety of their foreign fixed-income portfolio and are likely in the process of reallocating back to the rest of the world. The shrinking in US world relative growth differentials and ongoing political turmoil in the US may have helped catalyse this trend."
Putting those two shifts together, dollar weakness doesn't look like it's going away in the near future.
More From Business Insider