How low can the dollar go?

The podcast discusses the current weakness in the US dollar, which has fallen about 9% in 2025 and continues struggling in 2026 despite positive economic indicators like strong job numbers and economic resilience. The hosts explain that this unusual situation breaks normal correlations where strong US economic performance typically supports the dollar. Three main factors are driving dollar weakness: first, the US continues cutting interest rates while other central banks have paused or raised rates, eroding the dollar's carry advantage; second, global investors are actively diversifying away from US assets and increasing hedging of dollar exposure; and third, ongoing concerns about US institutional integrity, including political pressure on the Federal Reserve. The discussion reveals that asset managers are having explicit conversations with clients about reducing US exposure and hedging dollar risk, with new mandates increasingly including dollar hedging requirements. The Trump administration's mixed signals on dollar policy add uncertainty - while officials maintain a 'strong dollar policy,' they've also expressed that dollar strength burdens US manufacturing and praised recent dollar weakness. Recent Federal Reserve minutes suggest potential resistance to further rate cuts due to inflation concerns, creating tension between political pressure for lower rates and economic conditions that may warrant higher rates. The hosts anticipate this will be a gradual, multi-year process of dollar weakness rather than a sudden collapse, though they note the potential for a more dramatic 'showdown' between political pressure and economic necessity.