Westpac Sees Dollar Structural Pressures Building, Targets $1.21 EUR/USD by 2027
0h ago|5 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
us-dollareur-usd
Fazen Markets Editorial Desk
Collective editorial team · methodology
Trades XAUUSD on autopilot. Verified Myfxbook performance. Free forever.
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The majority of retail investor accounts lose money when trading CFDs. AiX is informational software — not investment advice. Past performance does not guarantee future results.
Westpac Banking Corporation announced on 18 August 2026 that the US dollar faces building structural headwinds that outweigh its recent resilience, expecting the euro and sterling to appreciate gradually over a multi-year horizon. The bank framed the dollar index's essentially flat month, ending 1.5 points lower at 99.5, as a sign of market indecision rather than strength. Westpac's analysis points to narrowing US economic breadth, deepening fiscal imbalances, and diminished Federal Reserve forward guidance as slow-moving pressures. These factors underpin the bank's forecasts for EUR/USD to reach $1.21 and GBP/USD to reach $1.39 by the end of 2027, after which both pairs are expected to plateau. The bank highlighted that the DXY index's 20-year average is nearly 9% below current spot levels, implying scope for a larger repricing than its base case captures.
Westpac's report arrives during a period of conflicting signals for the US dollar. The index showed notable resilience earlier this month, trading as much as 0.5 points above its 10 July level, despite market anticipation of further Federal Reserve interest rate hikes into year-end and geopolitical uncertainty from an elusive US-Iran deal. This resilience has now given way to a 1.5-point decline to 99.5, driven primarily by euro and sterling strength. The last comparable period of sustained dollar weakness driven by structural concerns was in the early 2000s, following the dot-com bust and twin deficits debate, which saw the DXY decline over 30% from its 2001 peak to its 2008 trough.
The current macro backdrop features a US economy where growth optimism is tempered by persistent inflation concerns, keeping Fed policy expectations elevated. Meanwhile, Westpac observes a shift in the risk balance for Europe and the UK, where growth and inflation dynamics are becoming more favourable. The catalyst for the bank's long-term view is not a single event but the compounding effect of structural factors it argues are being overlooked. These include a US fiscal trajectory that stands apart from peer nations and a political environment in Europe showing greater common purpose on key issues like defence, contrasting with US partisan turbulence.
Westpac's analysis is anchored by specific price levels, targets, and historical averages. The US dollar index (DXY) closed the reported period at 99.5, representing a decline of 1.5 points from its starting level. The euro and British pound were the primary drivers of this move, each appreciating approximately 1.5 cents over 30 days to reach $1.16 and $1.36 respectively. As of 02:36 UTC today, related market movements show NEAR trading at $1.63, reflecting a 24-hour gain of 0.82%, and TGT at $151.01, down 2.89% on the day.
The bank's forward-looking targets are precise: a move to $1.21 for EUR/USD and $1.39 for GBP/USD by December 2027. These targets imply appreciations of roughly 4.3% and 2.2% from current spot levels for the euro and pound, respectively. To provide historical context, Westpac notes the DXY's 10-year average sits about 1% below the current spot price, a narrow gap. The more striking statistic is the 20-year average, which sits almost 9% below the current DXY level of 99.5, suggesting a much deeper historical mean reversion is possible.
| Metric | Level / Target | Implied Change from Current |
|---|---|---|
| DXY Spot | 99.5 | -1.5 pts (from month start) |
| EUR/USD Spot | $1.16 | +1.5 cents (30-day move) |
| GBP/USD Spot | $1.36 | +1.5 cents (30-day move) |
| DXY 20-Year Avg. | ~9% below spot | N/A |
| EUR/USD Target (End-2027) | $1.21 | +4.3% appreciation |
Westpac's structural dollar bear case carries specific second-order implications. A gradually weaker dollar typically benefits US multinationals with large overseas revenue streams, as foreign earnings translate into more dollars. Sectors like technology, industrials, and consumer staples could see tailwinds. Conversely, it increases imported inflation pressure in the US, potentially complicating the Federal Reserve's task and keeping longer-dated Treasury yields elevated, which weighs on interest-rate-sensitive sectors like utilities and real estate. In currency markets, the primary beneficiaries are direct: long EUR/USD and GBP/USD positions align with the bank's multi-year view.
A key limitation of this view is its long-term horizon, leaving it vulnerable to near-term cyclical forces that could overwhelm structural trends. The immediate market is still positioned for more Fed tightening, a clear counter-argument to near-term dollar weakness. If US growth continues to outpace Europe's by a wide margin or if geopolitical stress flares, prompting safe-haven flows, the dollar could strengthen sharply against Westpac's forecast. Current flow data suggests positioning is mixed; the euro's recent gain to $1.16 indicates some building long exposure, but overall market conviction appears low given the DXY's choppy, range-bound price action.
The immediate catalysts for the dollar will be the Federal Reserve's communications regarding its terminal rate and the evolution of US inflation data. The next FOMC meeting and Summary of Economic Projections in September will be critical for assessing the pace of future hikes. In Europe, the European Central Bank's policy path relative to the Fed and concrete progress on EU fiscal integration plans are key watchpoints. For sterling, the Bank of England's inflation fight and any post-election policy shifts from the new government will drive near-term volatility.
Key technical levels to monitor include DXY support around the 98.50 level, a break of which could accelerate the downtrend Westpac envisions. For EUR/USD, resistance is seen near $1.1750, the early summer high, with a sustained break above opening the path toward $1.20. GBP/USD faces a similar technical hurdle near $1.3750. Should US economic data, particularly non-farm payrolls and core PCE inflation, continue to surprise to the upside, these resistance levels are likely to hold, invalidating the near-term bearish dollar narrative even if the long-term structural concerns remain.
A weaker dollar impacts several common investment holdings. For US investors with international equity exposure, either through direct foreign stocks or funds like the iShares MSCI EAFE ETF (EFA), returns are boosted when the dollar falls, as foreign gains are worth more in dollar terms. It also makes foreign travel and imported goods more expensive. For commodity markets, which are often priced in dollars, a falling dollar can be supportive for prices of assets like gold and oil, potentially benefiting related equities and ETFs. Conversely, it can hurt the competitive position of purely domestic US companies that face import competition.
Westpac's outlook is notably more bearish on the dollar's long-term structural trajectory than the consensus, which often focuses on cyclical factors like interest rate differentials. Many banks' forex forecasts extend only 12-18 months and are heavily influenced by near-term Fed policy expectations. Westpac's decision to publish targets for end-2027 is unusual, framing the move as a multi-year grind rather than a tactical trade. Other institutions may acknowledge US fiscal challenges but weigh them less heavily against near-term yield and growth advantages. This divergence highlights the debate between cyclical and structural analysis in currency forecasting.
AiX is our free MetaTrader 4 Expert Advisor. Verified Myfxbook performance. No subscription. No fees. XAUUSD breakout engine.
Trade forex with tight spreads from 0.0 pips
Open AccountSponsored
Open a demo account in 30 seconds. No deposit required.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.