Newsletter · · Ashutosh Agarwal

The Dollar Is Leaning on a Fed Bluff - The Dollar Brief - Week of July 10, 2026

The dollar newsletter for July 10, 2026. Kevin Warsh's first Fed minutes revealed a committee split right down the middle on whether the hike now propping up the dollar is even coming, and a loud chorus of strategists argued the hawkish turn is partly theater, leaving the crowded dollar long resting on a bluff.

The Dollar Brief

Week of July 10, 2026: The Dollar Is Leaning on a Fed Bluff

Last week the currency desks put hard numbers on the dollar. This week the Fed's own minutes landed (the first under new chair Kevin Warsh) and they exposed the fault line running underneath the whole trade. The dollar's recent strength is built almost entirely on one bet: that the Fed will raise interest rates. The minutes showed a committee split right down the middle on whether that hike is coming. And a striking number of this week's voices, including a former Fed official, a Jefferies strategist who has watched the central bank for decades, and a former Fed insider now running her own research shop, think the hawkish turn propping up the dollar is at least partly theater. If they are right, the crowded dollar position is leaning on a bluff.

TL;DR

  • The Fed minutes were the week's main event. Warsh's first meeting produced a rare, wide split: eight officials leaning toward holding or cutting, nine leaning toward a hike. The market now puts an "elevated 80% probability" on a September hike and roughly 35 basis points of hikes by year-end. That repricing, a swing of a full percentage point, from pricing cuts to pricing hikes in about four months, is the engine under the dollar.
  • The bank FX operators like the dollar but won't step in. Standard Chartered's head of G10 currency research says real (inflation-adjusted) interest rates at multi-year highs make the dollar attractive "for the right reasons," yet timing risk is keeping investors from actually buying, and, tellingly, "the market's" not "as long dollars as the futures exchange data suggests." Tradition's macro advisor calls the dollar "cyclically… and structurally strong" and flatly rejects the de-dollarization story.
  • But a loud chorus says the hawkishness is a bluff. Jefferies' David Zervos calls the Fed's rate projections "one of the most disingenuous" he has seen, "a political problem," not an inflation problem, noting that inflation expectations actually collapsed even as the projected hikes appeared. Danielle DiMartino Booth expects no hike and no cut in 2026. The gold-and-crypto camp goes further: Warsh secretly wants to cut before the November midterms. The clean counter came from a former Fed official who says the market has it right and the Fed should "act sooner rather than later."

What's new

The Fed minutes were the week's real news, and they revealed a house divided. On Power Lunch (Jul 8), CNBC's Steve Leisman read out the minutes from Warsh's first meeting: "all members supported no change in the policy rate," but the projections showed "eight had a hold or a cut and nine had a hike." Host Brian Kelly's reaction captured it: "that would be the most divided Fed that I have heard of or read about or dealt with in 30 years." The worry that stood out was self-reinforcing inflation: "a majority highlighted the possibility that continued inflation above 2% could begin to infect inflation expectations and color wage and price decisions." On CNBC's Fast Money (Jul 8), Leisman added the market's read: "nine forecasting at least one rate hike this year, leading the market to now put… an elevated 80% probability on a September rate hike." Andrew Davis of Bryn Mawr Trust Advisors summed up the takeaway plainly: the Fed is "not urgently in a position to hike and they're not urgently looking to cut," the "bar for easing rates has really been raised," and, his best line, "I wouldn't confuse a patient Fed with a comfortable Fed."

A veteran Fed watcher calls the hawkish projections a political act. Also on Power Lunch (Jul 8), Jefferies chief market strategist David Zervos, an operator, and a former Fed staffer, delivered the week's most provocative take. First, the swing: "Before the conflict in Iran began, we were priced for 50 basis points of rate cuts. Now we are priced for 50 basis points of rate hikes… we've moved higher in the last four months and a week or so. And you know what the market has done since then? It's gone up about 9 percent." His conclusion: "the market is basically saying, I don't really care much about what this Fed is doing." Then the accusation. In March, no committee member penciled in a hike by year-end; by June, nine did, "including one person that moved from no hikes to three hikes" and "five that went to two hikes." And over that same stretch, market-based inflation expectations (measured in the TIPS bond market) "collapsed… down over 100 basis points" to "their lows of the year." Zervos: "I think this is one of the most disingenuous dot plots I've ever seen. It's almost like a pick me dot plot… They're just sort of having their heads dunked below water and they're trying to… create relevance." His bottom line: "the biggest risk at the Fed is not about inflation or anything related to the economy. It's about rebellion and politics." To his credit, Leisman steel-manned the other side in real time: survey-based inflation expectations (notably the New York Fed's) have "become concerning," and this is a committee that "just went through a period where they saw inflation as transitory and they got burned in a very bad way." That memory, Leisman argued, "colors their views right now."

The bank FX operators like the dollar, but won't actually buy it. On Bloomberg Surveillance (Jul 9), Steve Englander, Global Head of G10 FX Research for North America at Standard Chartered, an operator, not a commentator, laid out the cleanest version of the "like it, can't own it" problem. The renewed Iran fighting, he said, "has faded into the background… it's not really a very tradable type of issue"; what matters is "what the Fed is going to do, what the US economy is going to do." On the fundamentals he is constructive: real interest rates "have moved up to like the highest levels… in recent years" and "could go higher… for good reasons," reflecting a positive productivity and supply story rather than a fiscal blow-out. His memorable framing: "the US is like a hedge fund. We borrow from places that save and we invest it," and "a positive return to capital attracts capital." But the trade is all about timing: "you might say, yes, I have a dollar positive view in 3 months, but I don't want to be stopped out in 3 days because things escalate." And the positioning tell that matters most: "I don't think the market's as long dollars as say the futures exchange data suggests, because I think there's still a reluctance to buy it." On the new Fed chair, the currency market is "giving him the benefit of the doubt… he said all the right things. Let's see what the follow-up is going to be." On the yen at 162, with the Bank of Japan looking dovish, he was blunt about the trap: the central bank is "praying for rain," and "half the market is waiting for them to come in so that they can sell the yen when it goes from 162 and change to 158 and change."

A second operator: cyclically and structurally strong, and de-dollarization is "checked out." On Bloomberg Surveillance (Jul 7), Steven Major, Global Macro Advisor at Tradition, made the case that the entire move is just a rates story wearing a costume. "We came into this year at one point priced for 2 or 3 cuts. We're now closer to 1 hike… That's 100 basis points. So the entire explanation of what's going on with bond yields is just down to market expectations around the Fed. But people are dressing it up as if it's something else, something more structural." On the dollar specifically: "I don't buy the anti-globalization or the de-dollarization type of view… the data says dollar transactions are still strong. The majority of trade and transactions in securities still goes through the dollar." His forecast is a soft glide, not a collapse: the dollar is "quite cyclical and structurally strong… we might lose some of the cyclical support for the dollar in the second half. But the structural foundations are still very much in place."

The bluff chorus. The skeptics span the credibility spectrum. On The Julia La Roche Show (Jul 9), Danielle DiMartino Booth of QI Research (a former adviser at the Dallas Fed) said the minutes were "clean" (no massaging) and that Warsh "really has, for the moment at least… convened a consensus around his leadership position." Her call is for a Fed that does nothing in either direction: prediction-market traders on Kalshi put a "79% chance that the Fed maintains the rate" in July and, strikingly, "just north of 76%… don't see a cut in 2026." Her own view: "I don't think the next move is going to be a hike," but no cut either, because the economy is quietly weakening. She pointed to labor-force participation at a "50-year low," widespread job insecurity, and a rare negative reading on revolving (credit-card) borrowing in May, which "typically means that lenders are tightening standards." Then the pundits, whose commentary should be read as opinion, not desk positioning. On The Jack Mallers Show (Jul 7), the Strike founder was unsparing: "I do not buy the Fed hiking rates for a second. I think it's full of shit. I think it's a charade. I think it's a bunch of acting." His theory of the play: Warsh "huffs and puffs at the market, the dollar's strengthened, assets weakened, inflation cools off, and then he comes back in fall and says… we got to cut rates." On BTC Sessions (Jul 7), economist Peter St. Onge rated Warsh "probably a two" on a one-to-ten "how Volcker is he" scale: "he is hawkish for a modern Fed chair, which is like saying… he's an honest car thief." Fund manager Larry Lepard went further: "I think he's actually a lot more dovish… I think he's foaming the runway to cut rates," predicting a cut "before the election… I think they might cut them at the next meeting." And on The Dividend Cafe (Jul 6), wealth manager David Bahnsen, who has been "not really very convinced" Warsh would hike for months, noted the futures market still leans the other way (a "42% probability… of one hike, 27% for two, 7% for three," 24% no hike) but flagged the logical trap for the hawks: you can't argue the Fed should hike "because inflation expectations have picked up" and "because the market is wrong about inflation expectations going down… You sort of have to pick a lane there."

The clean counter: a former Fed official says the hikes are real. On The Outthinking Investor (Jul 7), Jim Bullard, St. Louis Fed president from 2008 to 2023, and famously early in calling out "transitory," took the hawkish read seriously. Host Daleep Singh (of PGIM, which "predicted out of consensus that the Warsh Fed will hike the policy rate 75 basis points this year") first walked through just how much changed at the June 17 meeting: the policy statement "shrank from 341 words to 130," the easing bias was dropped, the projections "flipped from showing one cut to a projected hike this year," and Warsh announced five task forces to overhaul how the Fed communicates and operates. Asked whether the market, pricing "about 35 basis points of hikes before year-end," has it right, Bullard said: "I think they are. I think the committee has moved in a more hawkish direction." His reasoning is data, not politics: "with core PCE inflation running over 3%, that's beyond a red line for the committee," the year-end core inflation forecast was revised up 60 basis points to 3.3%, and it's "no longer projected by the FOMC to hit 2.0% within its forecast horizon." The driver, in his diagnosis, is a demand boom from AI capital spending colliding with supply shocks that don't fade on their own. His prescription: "it's probably going to take rate increases… acting sooner rather than later is a good idea, because if inflation does rise to 3.5% or above… it's going to take a long time to get that down." He even floated a Greenspan-style surprise move, "the latest data will come in pretty hot, and we're just going to move right now," which would mean "a more volatile outcome for traders."

The debate: is the hawkish repricing real, or a bluff?

The "it's real" case is the level of inflation and the return to capital. Bullard's argument is the strongest version: core inflation has now overshot 2% for more than five years running, the Fed's own forecast no longer sees it getting back to target, and the demand pressure from AI investment is not the kind that high rates or falling oil will easily cool. Englander adds the market-plumbing version: real rates are at multi-year highs "for good reasons," a productivity story that genuinely pulls global capital toward the dollar. And Leisman's caveat matters: survey measures of inflation expectations have started creeping up, and a Fed that got burned by "transitory" is not going to take chances.

The "it's a bluff" case is that the data points the other way. Zervos's evidence is hard to wave off: while the projected hikes multiplied from zero to nine between March and June, the market's own inflation expectations fell more than a full percentage point to the lows of the year. If the inflation scare were real, those expectations should be rising, not collapsing, which is why he reads the hawkish dots as internal politics rather than economics. DiMartino Booth stacks the labor and credit data on top: participation at a half-century low, job insecurity high, households pulling back on credit-card borrowing as lenders tighten. And the gold-and-crypto camp supplies the motive: a huge federal debt load and a looming election that, in their telling, make cuts inevitable no matter what Warsh says now.

The seam to watch. Both sides actually agree on one thing, and it's the most important thing: the dollar right now is a pure bet on Fed rates. As Major put it, "the entire explanation of what's going on with bond yields is just down to market expectations around the Fed." So the dollar rises and falls on whether Warsh delivers the roughly one hike now priced in. The single clearest tell is the contradiction Zervos and Bahnsen both circled: the TIPS market says disinflation, the Fed's projections say hikes. One of them is wrong, and the dollar is positioned entirely for the projections.

The trades in play

  • Long dollar on real rates, but mind the entry. Englander's operator version: right thesis, hard timing, "a dollar positive view in 3 months" that you don't want "stopped out in 3 days." The sweetener is positioning: if the market really is "not as long dollars as… the futures exchange data suggests," there is still fuel from reluctant buyers if the Fed follows through.
  • Own the structural dollar, fade the collapse story. Major and, on the reserve side, Barry Eichengreen: hold the dollar's cyclical strength, don't pay up for the de-dollarization or dollar-collapse narrative that "checked out this year."
  • Fade the hawkish dollar. The Zervos / DiMartino Booth / bluff-camp expression: if the projected hikes are political and cuts arrive by the fall, the crowded dollar long unwinds, and the sound-money assets (gold, silver, Bitcoin) that sold off on the hawkish repricing are the natural other side of that trade.
  • Short-yen carry, but the Bank of Japan is boxed in. Englander: 162 "looks cheap for the yen," the central bank is "praying for rain," and "half the market is waiting for them to come in so that they can sell" any intervention bounce. Trade the intervention spikes; don't bet on a durable trend change.

Read-throughs

  • The reserve-currency scare got a reality check from the man who wrote the book on it. On Macro Musings (Jul 6), historian Barry Eichengreen (author of Money Beyond Borders) put hard numbers on the dollar's dominance: it "accounts for 57% of foreign exchange reserves worldwide," while "the Chinese renminbi accounts for 2%." China's push is stalling: cross-border payments in renminbi "had been growing at double-digit rates until 2025, when they barely grew at all," and the supposed European alternative "has gained zero ground on the dollar… in its 25 years of existence." His verdict: plenty of currencies can "nibble at the dollar's dominance around the edges," but none "can fill the dollar's shoes." The real threat, he stressed, is homegrown: a debt-to-GDP ratio "beginning to rise to alarming levels" from deficits "neither party has the appetite" to address, plus the political foundations (Fed independence, rule of law) that confidence in the dollar quietly rests on. It is the measured counterweight to the gold-channel de-dollarization noise, and it lands on the same conclusion Major reached from the trading side.
  • The yen is the pressure gauge for the whole trade. Englander's read is that dollar-yen at 162 is stuck: the economy "doesn't look great," capital outflows are "massive," and the options market prices "the probability that the yen goes down at very low levels right now," meaning traders expect no relief. That is exactly the setup that makes intervention a trap, with everyone poised to sell the bounce. As long as the yen sits there quietly, it is one more sign the market is comfortable with a strong dollar.

What changed

Last week the currency desks argued about the dollar's destination, DXY 103 versus a top already in, but agreed on the engine: interest-rate differentials and carry. This week the engine itself got questioned. Warsh's first minutes revealed a genuinely split committee, and the loudest new voices, a Jefferies veteran, a former Fed president on the other side of the argument, and a former Fed insider now running research, turned the debate from "how high" to "is the hawkish turn even real?" The dollar itself hasn't moved much, and that is precisely the point: it is coiled on a single bet that the Fed hikes. If Warsh delivers, Bullard and the real-rate crowd are right. If the projected hikes were politics, as Zervos argues and the falling inflation expectations hint, the crowded long becomes the pain trade. The first place we'll find out is next week, when Warsh testifies to Congress.