Structural headwinds may outweigh near-term Fed hike expectations, pushing EUR/USD and GBP/USD higher by end-2027.
The US dollar index ended July 1.5 points lower at 99.5 after fluctuating within a 0.5-point range, reflecting market indecision rather than resilience. Westpac attributes this to deepening fiscal imbalances, rising debt costs, and narrowing US economic outperformance, which it views as long-term drags on the currency.
Despite recent expectations of Federal Reserve rate hikes into year-end, the bank argues these cyclical factors are overshadowed by structural pressures. The DXY’s current level sits nearly 9% above its 20-year average, suggesting potential for a larger repricing if risks materialize.
Westpac’s forecasts extend to end-2027, signaling prolonged USD weakness, particularly against the EUR and GBP. The bank’s analysis frames the dollar’s recent stability as temporary amid growing fiscal and political uncertainties.