Westpac's framing treats the dollar's choppy but ultimately flat month, ranging as much as 0.5 points higher before ending 1.5 points lower at 99.5, as a market still undecided rather than genuinely resilient, particularly given it held those levels despite an elusive Iran deal and growing expectations the FOMC hikes into year end. The bank's core argument is structural rather than cyclical: narrowing breadth in US economic outperformance, deepening fiscal imbalances, rising debt service costs, and diminished FOMC forward guidance are all framed as building headwinds that compound over time rather than resolve quickly, which is why Westpac's targets extend out to end-2027 rather than calling a near-term top. The reference to DXY's 20-year average sitting almost 9% below spot is the more provocative detail for positioning purposes, since it frames current dollar strength as historically stretched and implies scope for a much larger repricing than Westpac's own base case captures if the risks it flags actually crystallise.---Earlier from WPAC:Joint US-Japan intervention loses grip as USD/JPY climbs back above 159---Westpac thinks the dollar's flat month is masking a slow structural shift against it, with fiscal and political headwinds building even as the market currently leans toward more Fed hikes.Summary:The US dollar index has struggled for direction this month, ranging up to 0.5 points above its 10 July level before ending 1.5 points lower at 99.5This occurred despite an elusive US-Iran deal and market expectations for the FOMC to hike into year end amid optimism on US growth but concern over inflationEuro and sterling were the primary drivers of DXY moves over the past 30 days, each appreciating around 1.5 cents to $1.16 and $1.36 respectivelyWestpac says current levels are not historically stretched for either currency, with the balance of risks turning more favourable for both economies on growth and inflationThe bank targets EUR/USD at $1.21 and GBP/USD at $1.39 by end-2027, after which it expects each currency to plateauWestpac expects the balance of risks to increasingly shift against the US over time, citing narrowing breadth in US economic outperformance and greater political common purpose in Europe compared with US partisan turbulenceThe bank flags structural US budget imbalances, rising debt service costs, and market unease over diminished FOMC forward guidance as larger headwinds for the dollar than for the euro or poundWestpac notes DXY's 10-year average sits around 1% below current spot, while the 20-year average is almost 9% lower, implying a material chance of an outsized market move if risks against the US crystalliseThe US dollar has struggled to establish a clear direction this month, according to Westpac, repeatedly trading as much as 0.5 points above its 10 July level before ultimately ending the period 1.5 points lower at 99.5. The bank says that indecision is notable given it occurred despite an elusive US-Iran deal and a market increasingly positioned for the FOMC to hike into year end amid optimism on US growth but concern over inflation.Euro and sterling were the main drivers of the DXY index's moves over the past 30 days, both appreciating around 1.5 cents to $1.16 and $1.36 respectively. Westpac says these levels are not historically demanding for either currency, and that the balance of risks facing both the eurozone and the UK is becoming more favourable on growth and inflation. The bank targets EUR/USD reaching $1.21 and GBP/USD reaching $1.39 by the end of 2027, after which it expects both currencies to plateau.Westpac's underlying argument for why this trend continues is more structural than cyclical. The bank points to an extended period of US economic outperformance that has increasingly relied on a narrowing base, suggesting the run may not be sustainable. It also points to political contrast, describing a striking degree of common purpose in Europe around defence and economic development, set against ongoing partisan turbulence in the US.Government debt is a live issue across all three jurisdictions, Westpac notes, but the bank argues the structural imbalance in the US budget position stands apart, compounded by rising US debt service costs and growing market unease over the Federal Reserve's diminished forward guidance. Together, these are framed as larger financial headwinds for the dollar than for either the euro or the pound.Westpac closes by putting the dollar's current level in longer historical context. The DXY index's 10-year average sits around 1% below current spot levels, a relatively modest gap, but its 20-year average is almost 9% lower. The bank says this widening historical gap points to a material chance of an outsized market move should the risks it has identified against the US actually materialise, rather than the gradual drift its base-case targets imply. This article was written by Eamonn Sheridan at investinglive.com.