Dollar's Flat Month Hides Structural Headwinds: Westpac Forecasts Euro and Sterling Gains
The US dollar has struggled to find direction this month, trading as much as 0.5 points above its July level before ending 1.5 points lower at 99.5.
Despite an elusive Iran deal and market expectations for the Federal Reserve to hike interest rates into year-end, the dollar's flat performance masks a slow structural shift against it, according to Westpac.
The bank points to narrowing breadth in US economic outperformance, deepening fiscal imbalances, rising debt service costs, and diminished Federal Reserve forward guidance as building headwinds that compound over time rather than resolve quickly.
Westpac's targets extend out to end-2027, with the euro and sterling expected to continue their appreciation. The bank forecasts EUR/USD reaching $1.21 and GBP/USD reaching $1.39 by then, after which it expects both currencies to plateau.