(Bloomberg) -- The dollar is at risk of losses whether the US government lands in a fiscal crisis or a recession, according to George Saravelos, Deutsche Bank’s global head of FX strategy.

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“A dollar fiscal frown is the best way to picture things,” Saravelos wrote in a note on Monday, riffing off the so-called “dollar smile” framework Stephen Jen put forward more than two decades ago. Upcoming budget negotiations will determine where the dollar lands on that curve.

“At one extreme on the left is a fiscal stance that is too easy,” Saravelos wrote in a note on Monday. “This leads to a combined drop in US bonds and the dollar — as we are once again witnessing this morning.”

The 30-year Treasury yield climbed to its highest since November 2023 on Monday, following Moody’s Ratings downgrade. Meanwhile, a dollar gauge fell as much as 0.7%, with the greenback weakening against all of its peers in the Group of 10. If this pattern continues, it signals the market is “losing its appetite to fund America’s deficits and rising financial stability risks,” Saravelos said.

“At the other extreme, on the right of the frown is a fiscal stance that tightens too quickly, closing the deficit sharply but forcing the US into a recession and a deep Fed easing cycle,” he added. A middle ground would represent a soft landing, more favorable for the dollar.

Before this year’s trade war, markets tended to follow the “dollar smile” theory, where the greenback strengthens during periods of robust growth or deep downturns.

President Donald Trump’s tariff polices, however, have disrupted that pattern. They’ve weighed on global growth expectations, eroded the dollar’s safe-haven appeal and chipped away at US exceptionalism. The Bloomberg Dollar Spot Index lost more than 6% this year so far.

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