Newsletter · · Ashutosh Agarwal

A Soft Inflation Print Scrambles the Dollar Trade - The Dollar Brief - Week of July 23, 2026

The Dollar Brief for the week of July 23, 2026. A soft June inflation report took the air out of the crowded long-dollar trade just days before the Fed meets, and this week the professional desks at JPMorgan, Goldman and Morgan Stanley finally weighed in, turning one soft number into three different forecasts that all disagree with what the market is pricing.

The Dollar Brief

Week of July 23, 2026: A Soft Inflation Print Scrambles the Dollar Trade

Everyone came into July leaning the same way. The story was simple: inflation was going to run hot, the new Fed chair sounded like he wanted to raise interest rates, and a Fed that raises rates usually pulls money toward the dollar. So traders got, in the words of one desk, "hawked up," they piled into bets that the dollar would keep climbing. Then the June inflation report landed soft across the board, one of the biggest downside surprises of the whole cycle, and it knocked the wind out of that trade just days before the Fed meets again next week.

What makes this week different from the last few is who did the talking. For a stretch, the loudest dollar voices were the doom-and-gloom crowd on gold and crypto shows. This week the actual professionals showed up, the foreign-exchange strategists at JPMorgan, the chief economists at Goldman Sachs and Morgan Stanley, and weighed in directly on where the dollar and the Fed go from here. The catch: they do not agree with each other, and none of them agrees with what the market is pricing. Here is the week the pros finally entered the chat, and turned one soft number into three different forecasts.

TL;DR

  • A soft June inflation report took the air out of the "buy the dollar" trade. JPMorgan's FX team called it "a setback to the long dollar view," with one measure of underlying inflation shrinking for the first time since March 2025, but they are "too early to throw in the towel" before next week's Fed meeting, said Meera Chandan and Patrick Locke on At Any Rate (Jul 17).
  • The Fed's own tone got dramatically more hawkish, "the most hawkish since 2022" by JPMorgan's internal scoring, even as the market barely moved its rate bets, on At Any Rate (Jul 17).
  • The big banks think the market is too jumpy about rate hikes. Goldman's chief U.S. economist David Mericle put the odds of a hike this year at just "25%" versus the market's "50/50 chance of 2 or 3 hikes," on Goldman Sachs Exchanges (Jul 21). Morgan Stanley sees the Fed on hold all year and the next move a cut in 2027, on Thoughts on the Market (Jul 21).
  • Almost nobody expects a hike at next week's meeting. Bets on a July hike collapsed from around "40%" to "10 to 15%," said the Seawolf Capital team on RiskReversal Pod (Jul 16); the dollar index is "creeping up towards that 101 level" but "off that high of 101.80," said Craig Hemke on The KE Report (Jul 20).
  • The dollar's recent rally has been feeble, and that is the bear case. Strategist Peter Boockvar noted the dollar index only rose "maybe a 2 or 3-point rally in DXY" despite the market flipping from expecting rate cuts to rate hikes, "not much of a rally," and warned it is "coming to an end" if the AI-tech trade wobbles, on ITM Trading (Jul 17).
  • The dollar-shortage story that anchored last week got a second, independent witness. A separate host, hearing about it from his own family in India, described the same emergency drive to pull in dollars, banks offering above-market rates to attract "$70 to $80 billion," with the government sweetening the deal to a near "risk-free" arbitrage, on The Bitcoin Layer (Jul 17). Underneath it: India's central bank had quietly built a record "$106.7 billion" bet to supply dollars, per Jeff Snider on Eurodollar University (Jul 16).
  • The "abandon the dollar" camp was loud again, but with a twist. One side says central banks are quietly building a gold-backed alternative to the dollar; the other says the dollar's dominance is being deliberately secured by two former hedge-fund traders now running the Treasury and the Fed.
  • On Fed independence, the fear that had markets rattled a month ago, the professional desks sound calm, while legal scholars warn the guardrails are thinner than anyone thinks. "Everything that we're seeing and hearing is that... Warsh is going to be independent," said PGIM's Rob Sockin on Bloomberg Surveillance (Jul 21); but the Fed now has "the weakest protections against removal of any of the independent agencies," argued Lev Menand and Nathan Tankus on Odd Lots (Jul 17).

What's new

Start where the professionals started: one soft inflation number knocked the dollar trade sideways. For the first time in a while, a big-bank foreign-exchange desk laid out its dollar thinking in the open. On At Any Rate (Jul 17), JPMorgan's co-head of FX strategy, Meera Chandan, and New York strategist Patrick Locke explained that the bank had been running a "bullish dollar view" into the second half of the year, but always "with the caveat that this is contingent on a Fed delivery," meaning it only works if the Fed actually keeps policy tight. Then the June Consumer Price Index, the government's main inflation gauge, came in soft. Locke said the print "really stood out... both in terms of breadth and magnitude": core goods prices fell, core services were flat, and "super core" (a narrow slice of services the Fed watches closely) was "negative at 20 basis points, which was basically the first time it contracted since March of 2025." He called the combined miss "the second biggest disappointment relative to consensus going back to the start of this cycle." His plain conclusion for the currency: "it is a setback to kind of the long dollar view in a tactical sense." Because traders had "built up" dollar bets "reasonably materially pretty much since May," it was "natural... to see some pullback."

But, and this is the important part, the desk is not giving up on the dollar. Locke stressed the reaction was not "particularly overdone," and pointed to a strange wrinkle: even though headline inflation was soft, JPMorgan's own economists still expect the Fed's preferred inflation measure (core PCE) to rise "20 basis points" that month, keeping the yearly rate "around 3.3%," "not showing a lot of progress." Chandan added the striking detail of the week: the Fed's own tone, run through JPMorgan's language-scoring model, has turned "the most hawkish since 2022." In her read, front-end interest rates and the dollar are both "undershooting" that hawkish shift, which is why she said, "I still think it's too early to throw in the towel on the bullish dollar view, at least prior to the FOMC." One more thing worth knowing from that same conversation: the real money-maker in currencies right now is not the dollar at all, it is "carry," borrowing in low-yielding currencies (yen, Swiss franc) to buy high-yielders, and it has been "a gift that keeps giving," with currency-market volatility "at five or six years low." (All of this is sell-side strategy, the professional view from a major dealer, not a corporate insider.)

The big banks think the market is too worried about rate hikes. Here is where the pros and the market part ways. On Goldman Sachs Exchanges (Jul 21), Goldman's chief U.S. economist David Mericle said next week's meeting is "pretty clear," the Fed stays on hold, and his base case has the "next move being a cut in 2027." He framed the market's pricing as "a hike and a half... something like a 50/50 chance of 2 or 3 hikes," but put Goldman's own odds of any hike this year at "less than 50%, more like 25%." His reasoning is that today's inflation is not the dangerous kind. It is coming from one-off supply shocks, the war and oil, plus what he calls "mismeasured, exaggerated effects of AI demand" in the price data, not from an overheating economy. Strip those out, he said, "inflation's been reasonably close to 2% for a while." The single biggest risk to that call, he was blunt, is "absolutely the war." And he flagged a subtle hawkish shift: the Fed is "done litigating what exactly is causing inflation," meaning if high inflation lingers "from any source," they will feel they "really need to respond to that because this has just gone on for too long."

Morgan Stanley is even more relaxed, and openly "out of consensus." On Thoughts on the Market (Jul 21), chief U.S. economist Michael Gapen told global chief economist Seth Carpenter that inflation "moves lower to about 3% by the end of this year and closer to 2.5% next year," helped by "payback" in energy and tariff prices and cooling housing costs. His forecast: the Fed "doesn't change policy at all this year." The risk that would force a hike "in September or later" is simply that his inflation forecast proves "too optimistic," that prices stay stubbornly high. As for the AI-driven "chipflation" everyone frets about, he waved it off: those components are "less than 1% of the consumer basket." (Goldman and Morgan Stanley here are bank economists, institutional forecasters, not traders with a position to talk up.)

Down at street level, almost nobody expects a move next week. On RiskReversal Pod (Jul 16), host Dan Nathan and his guests, Porter Collins and Vincent Daniel of Seawolf Capital, the investors made famous by The Big Short, now running a family office, walked through the betting-market odds live. The chance of a July hike, Nathan said, "went down from... 40% chance to basically 10 to 15." All three agreed the next hike will not come before 2027. Collins described the Fed as "in a box": inflation is "hot, although it's cooling," while the government's interest bill "as a percent of overall tax receipts... keeps getting larger," so "I don't think they can afford higher rates and really fight inflation anyway." He made a point that matters for reading the inflation data, housing, which he pegged at "almost 45 percent of the CPI," is "very low right now and probably negative in some places," while the war-and-oil part is high. Daniel's read on what the new chair actually wants was the sharpest: "the most important thing he needs is... for our country to have a lower cost of capital so we could adequately service the debt at a low price." Austerity is off the table (it "probably equates to the S&P being down 30 to 40 percent"). So the plan, in Daniel's cynical telling, is to "jawbone that he's an inflation fighter... keep the dollar strong," and eventually let "the CPI and its structure and a bit of fabrication" show lower inflation that justifies cuts. (Seawolf are practitioners, active traders, but this is their opinion on the Fed, not inside information.)

The precious-metals desks agree the meeting will be a dud. On The KE Report (Jul 20), Craig Hemke of TF Metals Report gave the numbers: "about a one in six chance of a 25 basis point hike next week, 16% or so," and he would "be in the camp of the 84% that thinks there's not going to be a hike." He expects a "non-event," possibly no press conference, just a short statement, since chair Kevin Warsh "says he wants to talk less," with the real drama pushed to the Jackson Hole central-bank gathering in August. He noted the dollar index is "creeping up towards that 101 level" but "off that high of 101.80," and crude oil had spiked overnight "as high as about almost $85 a barrel" before easing "back to 82." Hemke is a skeptic on the hawkish story: "I don't think Warsh is as hawkish as the market or the media makes him out to be... he's just simply trying to prove... that he's not just a sock puppet for Trump. So he's out there talking tough. In the end, he'll come up with reasons to cut... but not yet." (Hemke runs a metals-focused site, treat this as pundit opinion.)

The clearest bearish-dollar case came from Peter Boockvar, and it hinges on the AI stock bubble. On ITM Trading (Jul 17), Boockvar, chief investment officer at OnePoint BFG Wealth Partners, argued the dollar's bounce has been pathetic given the news. "We're 100 to 101 in the dollar index. That's the bounce... from entering the year expecting 2 Fed rate cuts and then pricing in a few hikes and all we get is maybe a 2 or 3-point rally in DXY. Not much of a rally." His bear case is a chain reaction: the world's giant investors, he named the Swiss National Bank and Norway's Norges Bank, all own the same handful of U.S. tech stocks (the "Mag 7"). If that trade cracks, "that money is going to find another home, and chances are it's finding a home back home," pulling money out of dollars. He layered on a bond-market warning: since the Middle East conflict began in late February, the U.S. 10-year Treasury yield jumped from "3.94%" to "4.53%," about "60 basis points," with almost none of it explained by inflation expectations, meaning "real" (after-inflation) rates have shot up. He noted the same in Europe and Japan (the French 10-year at a "17-year high," Japan's at a "30-year high"), and pointed out Japan, "the third largest creditor nation in the world," might stop funding U.S. debt if its own bonds finally pay enough. His fiscal kicker: the U.S. budget deficit is "around 6%" of the economy, and if the AI trade stumbles and tax revenue falls, "it's going to 10, it's going to 12, it's going to 14%." (Boockvar is a professional investor and longtime market commentator, a strategist's view.)

George Noble made the same point from the bond side, with a memorable image. On The Julia La Roche Show (Jul 21), veteran fund manager George Noble argued U.S. bond yields "are just much too low. They should be maybe five and a half or six." His logic is household-budget simple: imagine a borrower earning "$5 trillion" a year, spending "$7, $7.5 trillion," already owing "$40 trillion" plus "another $125 trillion" in off-balance-sheet promises, asking to borrow for ten years at 4.5% while inflation is "at 3 and is rising." No sane lender says yes at that rate. Tellingly, he noted, bond yields are "40 basis points higher than they were before the war started," the opposite of the usual wartime flight to safety, "a tell." On the Fed, he does not buy the hawkish act: "when markets start to melt down, Warsh is going to blink just like they all do... The market's going to force him to cut," invoking the UK's 2022 "Liz Truss moment," when bond investors punished a government for reckless borrowing. He is bracing for a "Wile E. Coyote moment where markets take a dirt nap and the Fed's not going to be able to do a whole lot." On the dollar itself he was careful: "I don't really have a terribly strong view... You can't just look at the DXY," but framed the real story as every paper currency losing ground to hard assets: "last year the dollar went down 60% against gold." He likes gold and gold miners. (Noble is a longtime investor, an opinion, forcefully held.)

Meanwhile, the dollar-shortage story that anchored last week did not fade, it picked up an independent witness. The idea, laid out by analyst Jeff Snider on Eurodollar University (Jul 16), is that the world outside America is short of dollars, not sick of them, and India is the clearest symptom. This week a completely separate voice arrived at the same conclusion from a personal angle. On The Bitcoin Layer (Jul 17), the host described learning "from some family members" about "a large banking drive for dollars going on in India," the government leaning on banks to attract deposits from Indians abroad, targeting "$70 to $80 billion," and sweetening it with borrowing terms that make it "essentially risk-free." His reaction was the right one: "when you hear essentially risk-free, your radar should be flashing red because there is no free lunch." His read matched Snider's exactly, "India is trying to suck in dollars from the rest of the world because it's running out," and he has been watching "India, Korea, and Japan" for a brewing crisis. He tied it to the same mechanism Snider describes: buyers of oil worldwide "need to liquidate holdings of U.S. treasuries in order to purchase commodities that have increased in a dollar price," which drains dollars from the system and, he argued, is why "the dollar has appreciated of late." He also flagged the Japanese yen sitting at its "weakest level... going all the way back to 1990."

The number underneath India's scramble is worth pausing on. Snider detailed that India's central bank had, "by May 2026," built a record "$106.7 billion" position committing to supply dollars in the future, an enormous behind-the-scenes effort to prop up the rupee without visibly draining reserves. It has not worked: the rupee is heading for "an unprecedented ninth consecutive annual decline," and after a June rescue package it "erased all its post-measure gains" in "only two trading sessions" once oil rose again. The banks' new deposit push offers rates "as high as 7.5%," hoping to attract "around 50 billion U.S. dollars," and, as Snider put it, "if you've got to offer high interest rates, you're having trouble attracting currency." The broader tell he keeps pointing to: foreign central banks have drained roughly "$346.2 billion" of U.S. Treasuries out of the New York Fed's custody since the middle of last year, including "$28.6 billion" in a single week, as they sell bonds to raise dollars. His one-line summary: "India is not rejecting the dollar. It's desperately trying to obtain more of them. And so are many others." (Snider is an independent analyst; the Bitcoin Layer host, an analyst, both diagnoses, not positions.)

The debate: is the dollar being abandoned, or defended?

Underneath the direction question sits a bigger argument about the dollar's long-run role, and this week both sides were loud.

The "quietly being abandoned" case (the de-dollarization camp). The claim here is that the rest of the world is slowly building an alternative to the dollar, with gold at the center. On The Minority Mindset (Jul 21), the host laid out the long-run trend in plain numbers: "back in 2001, 72% of global currency reserves were saved in the United States dollar... fast forward to the end of 2025 and now only about 56%." His explanation: after the U.S. froze Russia's dollar reserves in 2022, other countries "all had the exact same thought," "what's stopping the United States from doing this to us?", and started buying gold and trading oil in other currencies (he cited Saudi Arabia's 2023 deal to sell oil to China in yuan). The most aggressive version came from precious-metals commentator Andrew McGuire on Kinesis Money (Jul 16), who claimed China's central bank is buying "three to five tons per day," officially "added 14.93 tonnes in June," and is building a "yuan-backed gold" settlement system through Hong Kong that could force a U.S. gold revaluation to "$6,000 to $8,000" or higher. (A strong caveat: Kinesis Money is a gold-selling platform and this is a promotional, conspiratorial pitch, treat the specific price targets as marketing, not analysis. The one broadly checkable claim is steady central-bank gold buying, which is real.)

The "being deliberately defended" case. The mirror-image argument says the dollar's dominance is being actively secured by the two men now in charge. On The Mark Moss Show (Jul 17), analyst Joe Consorti argued that Fed chair Kevin Warsh and Treasury Secretary Scott Bessent, "both of them worked for" hedge-fund legend Stanley Druckenmiller (and, earlier, George Soros, "his specialty was in currencies and currency wars"), are "two practitioners" deliberately conducting policy "to secure... the place at the top of the fiat heap for the U.S. dollar for years and decades to come." His blunt verdict on the doom crowd: "a lot of the dollar doomers... have been wrong for a very, very long time," and "the U.S. dollar is so entrenched in the halls of global finance that it's really going to be difficult to unplug." The twist: Consorti thinks their independence is partly for show, "feigning independence... and then doing the administration's bidding," and that Warsh's proposed switch to a "trimmed mean" inflation gauge (which strips out the biggest price swings) is designed to "foam the runway for cutting rates." (Consorti is a crypto-focused analyst, pundit opinion.)

The debasement camp tied it all together. Bridging both is analyst Michael Howell, on What Bitcoin Did (Jul 22), who argues governments have no choice but to slowly devalue their currencies. His mechanics: the world sits on "$350 to $400 trillion" of debt with an average life of about five years, meaning "$70, $75 trillion" has to be refinanced every year. In a system where old debt is the collateral for new lending, you "can't let defaults happen," so "all you can do is basically print money to devalue. That's what the Chinese are doing." He expects "a series of these quantitative easing processes," central banks flooding the system with money, and thinks "the West is bust." His long-run advice is gold and Bitcoin, but with a near-term warning: "don't try and catch a falling knife," because liquidity is tightening right now as that wall of maturing debt hits. (Howell is an independent liquidity analyst.)

Why the fork matters. These camps point in opposite directions. If the dollar is being quietly abandoned or debased, you fade it and own gold. If it is being defended, and if the world is short of dollars right now, you can be near-term bullish, because scarcity plus a hawkish-leaning Fed lifts the price. The tie-breaker, as it was last week, is oil: while crude stays elevated, the shortage engine runs and the dollar finds a floor; if oil rolls over, the slow-debasement story reasserts itself. Notably, both camps like gold, as either a debasement hedge or a crisis hedge, which is why it keeps showing up on every side of an argument the participants cannot all be right about.

The Fed sub-debate: what happens next week, and who blinks first?

This is the cleaner fight, and it resolves in days. Line up the views and a pattern appears, hardly anyone expects a hike now, but they scatter on what comes after.

  • On hold, next move a cut in 2027 (David Mericle, Goldman, economist). Hike odds this year just "25%," because the inflation is supply-driven, not demand-driven, on Goldman Sachs Exchanges (Jul 21).
  • On hold all year, out of consensus (Michael Gapen, Morgan Stanley, economist). Inflation falls to "about 3%" by year-end; only a stalled disinflation forces a hike "in September or later," on Thoughts on the Market (Jul 21).
  • Still hawkish, still leaning toward hikes (Rob Sockin, PGIM, strategist). The Fed has reached "a hawkish critical mass" and "the bar for rate hikes is relatively low," with Warsh wanting inflation "back to 2.0% without rounding," on Bloomberg Surveillance (Jul 21).
  • No hike before 2027 (Seawolf Capital, investors). July odds down to "10 to 15%"; the Fed is "in a box" and cannot afford higher rates given the debt bill, on RiskReversal Pod (Jul 16).
  • The market will eventually force a cut (George Noble, investor). He will not guess the meeting, but "when markets start to melt down, Warsh is going to blink," on The Julia La Roche Show (Jul 21).
  • A non-event, then Jackson Hole (Craig Hemke, pundit). "84%" odds of no hike next week; Warsh is "talking tough" to prove himself but "in the end, he'll come up with reasons to cut," on The KE Report (Jul 20).

The common ground: next week is very likely a hold. The real disagreement is about what the Fed does after, and whether the market, currently betting on hikes, will be proven right (dollar-supportive) or dragged back toward cuts (dollar-negative). Worth noting one gauge cited on the shows: bettors were pricing "only a 54% chance" of any hike before year-end, per the odds Noble's hosts referenced on The Julia La Roche Show (Jul 21), a coin flip.

The independence question: calm desks, nervous scholars

A month ago the scary story was a "captured" Fed cutting rates to please the White House. This week the professional desks sounded reassured, while the legal experts warned the reassurance may be misplaced.

The desks are relaxed. PGIM's Rob Sockin, asked directly whether Warsh can really run a hawkish policy under political pressure, was, in the host's words, "remarkably calm": "everything that we're seeing and hearing is that, A, Warsh is going to be independent and, B... the administration doesn't seem too perturbed with his communication so far, which has been quite hawkish," on Bloomberg Surveillance (Jul 21).

The scholars are not. On Odd Lots (Jul 17), legal and monetary experts Lev Menand and Nathan Tankus argued the legal ground under Fed independence is far shakier than the market assumes. Their central claim: after recent Supreme Court decisions, "the Federal Reserve had the weakest protections against removal of any of the independent agencies," for decades the Fed's independence rested on "this norm thing" and a handshake (the 1951 Fed-Treasury Accord), not hard law. They walked through a footnote in a recent removal case (the "Cook" opinion) in which Chief Justice Roberts protected the Fed only "as currently constituted and with its existing enforcement authorities," a carve-out that gets "really messy" if you start examining the Fed's powers one by one. Their deeper worry is the blurry line between money and government spending: the current administration is already "relaxing the equity capital requirements on banks," which "is stimulative... monetary stimulus," and in an extreme case a politically controlled Fed could make loans that function as spending, even, they warned, "buy Trump coins." (Menand and Tankus are academics and legal experts, not market participants, the deepest treatment of this theme this week.)

Read-throughs

  • The dollar's near-term path runs through next week's Fed, and the surprise risk is hawkish. With the desks split but nobody expecting a cut next week, and the Fed's tone "the most hawkish since 2022" (At Any Rate, Jul 17), any hawkish tilt supports the dollar; a dovish tilt undercuts it. Watch the statement's tone more than the (likely unchanged) rate.
  • Oil is still the master switch. A crude spike does two dollar-positive things at once, it deepens the world's dollar shortage (India needing "58%" more dollars for the same oil, per Eurodollar University, Jul 16) and it revives U.S. inflation, keeping the Fed hawkish. If oil rolls over, both supports fade together.
  • The AI-tech trade is now a currency story. More than one professional (Boockvar, Noble) argued the dollar's fate is tied to foreign money staying in U.S. tech stocks; if that trade cracks, repatriation could pull the dollar down even as the shortage pulls it up (ITM Trading, Jul 17). That tension is the key thing to watch.
  • Emerging-market currencies are the early-warning system. The rupee, the Korean won, and the yen are where a dollar squeeze shows up first (The Bitcoin Layer, Jul 17). A fresh leg down there would confirm the shortage thesis over the debasement one.

What changed

Last week the story was the plumbing, the world scrambling for dollars, with India as the poster child. This week that story held (and even gained a second, independent witness on The Bitcoin Layer), but the spotlight shifted to the professionals. A soft June inflation print took some air out of the "buy the dollar" trade just as JPMorgan, Goldman, and Morgan Stanley stepped in to disagree, with each other and with the market. The market is betting on rate hikes; the big banks think that is overdone (Goldman at "25%," Morgan Stanley on hold, next move a 2027 cut); the buy-side thinks the Fed is boxed in by the debt and will eventually cut. And the independence panic kept cooling on the trading desks even as legal scholars argued, in careful detail, that the Fed's protections are thinner than markets assume. It all funnels into one hard date, next week's Fed meeting, where the question is not whether policy gets easier, but which way the tone leans, and therefore which way the dollar breaks.