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Westpac sees the US dollar weakening as markets look through Middle East risks, with improving trade flows and global growth expected to support EUR, GBP and emerging market currencies.Summary:USD struggling to rally despite Middle East tensions
Markets pricing gradual normalisation in shipping flows
Westpac sees sustained USD downtrend ahead
Euro, sterling, yen and CAD expected to strengthen
RMB resilient, supported by energy access and manufacturing
Emerging markets seen benefiting from global growth shiftThe US dollar’s recent inability to rally despite heightened geopolitical tensions suggests markets may already be looking through the worst of the Middle East crisis, according to analysis from Westpac. Westpac notes that even as tensions escalated, including disruptions to shipping and direct conflict risks, the dollar has struggled to gain sustained upward momentum. Instead, it has drifted lower against a broad range of developed and emerging market currencies, particularly as expectations build for a gradual normalisation in global trade flows.The bank argues that markets are increasingly pricing in a “slow but steady” resumption of shipping through the Strait of Hormuz over the coming months. Combined with efforts by global policymakers to stabilise supply chains, this has helped ease some of the initial risk premium embedded in the dollar.Against this backdrop, Westpac expects a broader weakening trend in the greenback over the medium term. Its forecasts show the US dollar index (DXY) declining from current levels near 98 toward the mid-90s by late 2026, before settling closer to long-run averages thereafter.The anticipated decline is expected to be driven by gains in major currencies such as the euro and sterling, alongside a recovery in the Japanese yen and Canadian dollar. Westpac also highlights the resilience of China’s renminbi, which has remained relatively stable through the crisis, supported by diversified energy supply and its strategic role in global manufacturing.Looking further ahead, the bank sees emerging market currencies benefiting from improving global growth conditions and rising demand for industrial and green technology exports. This shift could mark a broader rotation away from traditional safe-haven currencies as investors increasingly focus on long-term opportunities in developing markets.While the timing remains uncertain, Westpac argues the balance of risks for the US dollar is skewed to the downside, particularly following an extended period of US economic outperformance and ongoing debate around US fiscal and geopolitical policy setting
This article was written by Eamonn Sheridan at investinglive.com.
💡 DMK Insight
Westpac’s outlook on the USD signals a potential shift in currency dynamics that traders need to watch closely. The expectation of a weakening US dollar comes at a time when geopolitical tensions in the Middle East are being overshadowed by improving trade flows and global growth prospects. This could mean a gradual normalization in shipping, which historically supports currencies like the Euro and GBP. If the USD continues to struggle, we might see a stronger push towards these currencies, particularly if they break key resistance levels. Traders should keep an eye on the EUR/USD pair, especially if it approaches the 1.10 mark, which could trigger further buying interest. However, it’s worth noting that the market sentiment can shift quickly, especially with any sudden developments in the Middle East. If tensions escalate, the USD might find temporary strength as a safe haven. So, while the long-term outlook seems bearish for the USD, short-term volatility could present both risks and opportunities. Watch for any significant economic data releases that could impact these trends, particularly from the US and Eurozone in the coming weeks.
📮 Takeaway
Keep an eye on the EUR/USD pair; if it approaches 1.10, it could signal a stronger bullish trend against a weakening USD.
