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 tensionsMarkets pricing gradual normalisation in shipping flowsWestpac sees sustained USD downtrend aheadEuro, sterling, yen and CAD expected to strengthenRMB resilient, supported by energy access and manufacturingEmerging 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.