Westpac Report: Structural Dollar Hegemony Falters, Paving Way for Euro and Sterling Bull Run

The US dollar, the cornerstone of the global financial system, is entering a long-term structural depreciation cycle as macroeconomic dynamics shift. In its latest strategy report, Australian banking giant Westpac declared that the greenback's weakening trend is becoming structural, while forecasting a sharp upward momentum for European currencies.

Escaping the Interest Rate Spread: Structural Pressures on the Greenback

As the Federal Reserve (Fed) embarks on its monetary easing cycle, the softening trend in the US Dollar Index (DXY) is taking on a structural character. Westpac analysts argue that the US budget deficit and debt spiral will continue to erode the dollar's global reserve share over the medium term.

■A drop below the 100 psychological support level in the DXY index has become a long-term target.

■The US twin deficit (budget and current account) exceeds 6% of GDP, creating a structural discount on the dollar.

■Reserve diversification moves by global central banks are dampening dollar demand by 3% annually.

Macro-Driven Upside Scenarios for Euro and Sterling

The cautious monetary policy stances of the European Central Bank (ECB) and the Bank of England (BoE) are creating arbitrage opportunities in favor of the Euro (EUR) and British Pound (GBP). Westpac highlights that growth dynamics, especially on the UK side, are proving more resilient than expected.

■With the 1.12 resistance broken in the EUR/USD pair, the 1.15 level has become the next technical target.

■In the GBP/USD pair, a rally towards 1.35 is projected due to sticky inflation dynamics in the UK.

■Signs of recovery in the Eurozone manufacturing sector are providing a structural floor for the single currency.

Caner Yılmaz's Quantitative Perspective: This structural shift in global forex markets will have a direct multiplier effect on the BIST 100 index. Technically, the DXY remaining below its 200-day moving average (MA200) triggers fund flows toward emerging markets (EMs). As long as EUR/TRY and GBP/TRY pairs, which are testing the upper boundary of the Ichimoku cloud, stay above the Fibonacci 61.8% retracement levels, their upward momentum will be sustained. Our algo-trading models indicate that foreign funds exiting USD-denominated assets to favor EUR and GBP carry trades will increase their appetite for export-oriented industrial stocks on the BIST. Consequently, the structural weakness of the dollar will help establish the 9,200 zone as a robust support level for the BIST 100.