How low can the dollar go?
The US dollar is experiencing weakness despite economic strength, primarily driven by political concerns rather than economic fundamentals. Investors are diversifying away from dollar assets due to worries about Federal Reserve independence and unorthodox economic policies, while the Trump administration appears comfortable with dollar weakness to boost manufacturing competitiveness.
Summary
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.
About this episode
<p>World markets continue to be down on the dollar. Today on the show, Katie Martin and senior markets correspondent Ian Smith discuss how inflation, politics and trade are weighing on the once mighty greenback. Also, they go short curling and long wealth managers in the age of AI. </p><br /><p>For a free 30-day trial to the Unhedged newsletter go to: <a href="https://www.ft.com/unhedgedoffer" rel="noopener noreferrer" target="_blank">https://www.ft.com/unhedgedoffer</a>.</p><br /><p>You can email Robert Armstrong and Katie Martin at <a href="mailto:[email protected]" rel="noopener noreferrer" target="_blank">[email protected]</a>.</p><br /><p><a href="https://www.ft.com/content/13bd68de-91d0-411e-bf28-ab2c2255de6b" rel="noopener noreferrer" target="_blank"><strong>Read a transcript of this episode on FT.com</strong></a></p><hr /><p style="color: grey; font-size: 0.75em;"> Hosted on Acast. See <a href="https://acast.com/privacy" rel="noopener noreferrer" style="color: grey;" target="_blank">acast.com/privacy</a> for more information.</p>
Key Insights
- Bank of America surveys show bearishness against the dollar has reached record lows among asset managers, indicating widespread investor sentiment against holding dollars
- Asset managers like Amundi report that new client mandates increasingly include requests to hedge away dollar risk, representing a structural shift in portfolio management
- The normal correlation between strong US economic performance and dollar strength has broken down, with politics rather than economics driving currency weakness
- Federal Reserve minutes revealed 'two-way risks' to monetary policy, suggesting some governors are considering potential rate hikes rather than just cuts due to inflation concerns
- The Trump administration's criticism of Federal Reserve research on tariffs represents direct interference in Fed operations beyond just monetary policy decisions
Topics
Transcript
Today's markets move fast. Get the insights you need in 10 minutes with The Barclays Brief, a new podcast from Barclays Investment Bank. Through sharp dialogue and scenario-based analysis, our leading experts analyze key market themes each week. So, whether you're managing a portfolio or leading a business, The Barclays Brief podcast can help you make smarter decisions today. Stay sharp. Stay briefed. Find Barclays Brief wherever you get your podcasts. The US dollar is down in the dumps. It's not crashing, but investors really don't like holding dollars, and it shows. It feels like the currency is taking the strain in markets from all the political disruption. Because that's the thing. It's not really economic news that's doing the…
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