Newsletter · 2026-08-27 · Ashutosh Agarwal

Everyone Is Shorting the Dollar but the FX Desks Are Not - The Dollar Brief - Week of August 27, 2026

The Dollar Brief for the week of August 27, 2026. Podcast synthesis on why the bank FX desks call the dollar's slide a positioning washout rather than a regime change, the first US yen intervention since 1998 and the swap lines that followed, and Barry Eichengreen's numbers on the slow leak in the dollar's reserve crown ahead of Kevin Warsh's Jackson Hole debut.

The Dollar Brief

Week of August 27, 2026: Everyone Is Shorting the Dollar but the FX Desks Are Not

For a week, the story was all about bonds: the Treasury's surprise buyback, a 30-year yield near its highest since 2007, gold ripping toward $4,500, and the dollar sliding on the news. The headline everyone reached for was simple. Washington wants a weaker dollar, so sell it.

But if you stopped listening to the loud macro voices and instead listened to the people whose actual job is to price currencies, the foreign-exchange desks at the big banks, you heard something quieter and more interesting. They think the dollar's sell-off is real but shallow, driven more by a positioning washout than a regime change, and they are not chasing it lower. In their words, the whole move "crumbles" the moment U.S. data comes in firm and the Fed stays orthodox.

Meanwhile, the genuinely new thing this week had almost nothing to do with the buyback everyone was shouting about. It was Japan. America intervened in the currency market to prop up the yen, its first yen intervention since 1998, and then quietly lent Japan dollars so Tokyo would not have to sell its huge pile of U.S. Treasuries. That is a dollar story hiding inside a yen story. And underneath all of it runs a slow leak nobody live-tweets: the dollar's share of the world's reserves has been dripping lower for two decades.

Jackson Hole starts today. New Fed chair Kevin Warsh speaks tomorrow morning. Let's walk through what the week actually told us.

(Quick vocabulary, used throughout. "FX" just means foreign exchange, the market where currencies trade. The "DXY," or dollar index, measures the dollar against a basket of other big currencies. A currency's "carry" is the interest you earn for holding it; a high-carry currency pays you to own it, which usually supports its value. A "funding currency" is the opposite, one so cheap to borrow that investors sell it to buy something higher-yielding elsewhere. The "carry trade" is exactly that move: borrow a cheap currency like the yen, invest the proceeds in higher-yielding assets abroad. "Real" rates are interest rates after subtracting inflation. "Term premium" is the extra yield investors demand to lock money up in long-dated bonds. A bond's "yield" is the interest rate it pays; bond prices and yields move in opposite directions, so heavy selling pushes prices down and yields up. "Yield curve control," or YCC, is when a government or central bank tries to hold a long-term interest rate down on purpose. "Financial conditions" is a catch-all for how easy or tight it is to borrow and take risk across markets. A "buyback" is the Treasury buying back its own older bonds. "Reserves" are the foreign-currency savings central banks hold; the dollar's dominant share of those is its "reserve-currency" status.)

TL;DR

The bank FX desks will not chase the dollar down. On JPMorgan's own currency podcast, strategist Arindam Sandilya said this week's dollar weakness "crumbles" if U.S. data lands where their economists expect and the Fed hikes as projected, and colleague Meera Chandan said that for the dollar to fall much further, "the Fed terminal rate needs to come off," which is not happening: markets still price "about 35, 37 basis points" of Fed hikes over the next year (At Any Rate, Aug 21).
"There is just no alternative right now." BNY's Geoffrey Yu said you should not be aggressively short the dollar because its yields are still high and it is expensive to fund out of: "Europe, for example, real yields are even worse" (Bloomberg Surveillance, Aug 21).
A weak dollar is fuel, not a fire alarm, for stocks. John Hancock's Emily Roland called the softer dollar "a risk-on catalyst" and "a liquidity release valve" that is powering international stocks and the great rotation out of mega-cap tech (Bloomberg Surveillance, Aug 21).
"I'm more in kind of the range camp." Ex-Bridgewater strategist Rebecca Patterson said she does not think the dollar "is about to fall off a cliff," but warned a weaker dollar "tends to push up inflation," which "might make it more likely that the Federal Reserve thinks it needs to raise interest rates" (Bloomberg Surveillance, Aug 21).
The real new event: America bought the yen. JPMorgan's FX team framed the month as a run of policy surprises, "one week it is the historic joint intervention on the yen," the next the buyback, and laid out the sequence: FX intervention, then the Treasury opening its emergency swap facility "to Japan to backstop treasuries in case of more intervention" (At Any Rate, Aug 21).
Why Washington cares about the yen: the carry trade. Johns Hopkins economist Steve Hanke explained the July 31 intervention as "an indirect form of yield curve control." If the yen collapses, the carry trade unwinds, and "investors worldwide would sell treasuries and treasury yields would go up even more" (The David Lin Report, Aug 18).
A blunter read: "I'll lend you more dollars." Pundit Luke Gromen said Japan "went to go sell their treasuries to defend the yen. And Bessent said, no, no, no… I'll lend you more dollars," calling it "a soft form of yield curve control" and a sign the Treasury market "is not as deep and liquid as it's been advertised" (Futures Edge, Aug 20).
The slow leak: the dollar's reserve crown. Berkeley economist Barry Eichengreen, the historian of reserve currencies, said the dollar's share of global reserves has fallen "from more than 70 percent at the turn of the century to less than 60 percent now," and that foreign central banks are quietly "de-risking against the dollar" over U.S. rule-of-law worries (Capitalism and Freedom, Aug 20).
Tomorrow: Warsh at Jackson Hole. The WSJ's Fed reporter Nick Timiraos called the new chair's communication style "evasive by design," and economist Frederic Mishkin worried he could slip back into Greenspan-era opacity (WSJ's Take On the Week, Aug 23). The FX desks say his tone is the week's real swing factor.

What's new

The people who price the dollar for a living are not chasing it lower

If you want to know what the dollar is likely to do, it helps to hear from the desks that trade it all day. This week they held a rare open debate on JPMorgan's currency podcast, At Any Rate (Aug 21), and the striking thing is how unconvinced they were by the bearish story everyone else was telling.

Host Arindam Sandilya, from JPMorgan's FX research team, set the scene: "reports of a quiet summer for macro markets are greatly exaggerated," he said, because "the policy surprises have been coming at us thick and fast. One week it is the historic joint intervention on the yen. This week it was the turn of the Treasury to up the size of long-end bond buybacks that abruptly flattened the long end of the U.S. yield curve and sank the dollar." His verdict on Washington: "clearly we are dealing with an activist Treasury that is not gun-shy about making the most of the tools at its disposal," and Secretary Bessent "alluded to the idea that there are other unused tools in the Treasury toolkit still."

Here's the part the debasement crowd skipped. Sandilya broke the dollar's drop into two possible causes. One is mechanical and mild: when the Treasury buys long-dated bonds, it lowers term premium, which loosens financial conditions, lifts risky assets, and softens the dollar, "something that we've seen countless times." The other is scarier and vaguer: the idea that "policy unpredictability slash credibility" is seeping into U.S. policymaking, the same story that drove the "Sell America" panic of 2025. His problem with the scary version: "where I seem to struggle with these simple explanations is that they all crumble if U.S. data flow were to unfold in the direction that our economists forecast. And the Fed ends up acting conventionally… which is shallow hikes into the end of this year and beyond." That, he reminded listeners, is why JPMorgan "turned bullish dollars in mid-May," because higher rates make the dollar "a higher carry candidate."

His colleague, call him the desk's designated bear-for-the-day, leaned dollar-negative but would not press it: "you should certainly question the magnitude and the durability of the sell-off." His sizing is worth sitting with, because it deflates the drama. The buyback is "like 14 billion effectively… compared to the 32 trillion dollar treasury market," and even the yen intervention was tiny, "our estimate that treasury only sold maybe around a half a billion euro yen." In other words, "when they have dipped their toe in recently, it hasn't been in a shocking bazooka style size."

Meera Chandan, who runs the London FX team, delivered the cleanest counter to the doom narrative. The 2025 comparison, she said, "is really not fair," because the Fed is in a completely different mood: "the most toxic combination for the dollar tends to be when term premium is going up in the U.S., but at the same time the Fed has an easing bias and front-end rates are falling. And that's certainly not the case right now." Proof: "the Fed pricing for hikes in the next year is basically more or less unchanged at about 35, 37 basis points." Her bottom line is the sentence dollar bears should tape to their screens: "for this to move substantially beyond what we've seen already, a necessary condition is that the Fed terminal rate needs to come off." Until the market stops expecting hikes, the dollar has a floor.

Two more market veterans said the same from different seats. On Bloomberg Surveillance (Aug 21), BNY strategist Geoffrey Yu was blunt about why he will not short the dollar: "there is just no alternative right now. Where else do you go? Europe, for example, real yields are even worse." He would only get bearish "if it's going to be global risk-on," when the dollar becomes a funding currency, but "the issue is the dollar's yields are still quite high. It's expensive to fund out of the dollar… Because growth is still strong. Real rates are still high." He leaned on the old "dollar smile" idea (a strong dollar both when the U.S. booms and when the world panics), adding: "a rising U.S. tide lifts all boats. I still believe in that."

Emily Roland of John Hancock and Manulife flipped the whole frame: for stocks, a weak dollar is not a warning, it is rocket fuel. "As long as the U.S. dollar is weaker… that is a risk-on catalyst," she said, describing it as a "liquidity release valve" that "loosens financial conditions" and "benefits international equities even more than it does U.S." She also punctured the deficit-scare explanation for higher yields: inflation expectations have barely moved ("TIPS breakeven started the year at 2.25 and we're the same at 2.27 right now"), growth has softened ("we lost 23,000 jobs last month"), and "the last time we had a surplus was in 2002 and bond yields were, guess what, 5%." Her read: "it comes down to sentiment. Everybody hates bonds. Everybody loves stocks… and everybody hates bonds right before they love them again."

The most balanced voice was Rebecca Patterson, the former Bridgewater and Bessemer strategist now at the Council on Foreign Relations, on Bloomberg Surveillance (Aug 21). She has been wary of long bonds since a New York Times op-ed "in January last year," and prefers cash, short-term fixed income, and "dare I say it, gold." She captured how odd this market feels: asked whether the U.S. bond market is starting to look like an emerging market, she said "a little bit, yes… if I wanted this kind of volatility, I'd go and invest in another country's bonds, not the U.S." On the currency itself she planted a flag squarely in the middle: "I'm more in kind of the range camp right now. So I don't think the dollar is about to fall off a cliff." But she flagged the trap that keeps recurring in these conversations: a weaker dollar "tends to push up inflation in the U.S. And at the margin, that might make it more likely that the Federal Reserve thinks it needs to raise interest rates." A falling dollar can plant the seed of the rate hike that stops it falling.

Put the desks together and you get a consensus that almost no one led with this week: the dollar's slide is real, mostly a positioning washout, and unlikely to turn into a rout unless the U.S. economy rolls over and the Fed gives up on hikes.

The real new thing this week was Japan, and it is a dollar story

While everyone argued about the buyback, the genuinely new policy event was a currency intervention most people barely registered. On July 31, the U.S. Treasury stepped into the market to prop up the yen, its first yen intervention since 1998.

Why would America care about a weak yen? Because of the carry trade. Johns Hopkins economist Steve Hanke laid out the fundamentals on The David Lin Report (Aug 18): the yen is weak because Japan's money supply is "growing at just a little over 2% per year," far too slow, while its new prime minister is "goosing the economy with more spending, especially spending on defense," on top of "the world's highest debt-to-GDP ratio for an advanced economy." All of that pushes the yen down.

The danger is what a collapsing yen does to America. The carry trade, Hanke explained, is when investors "borrow at very, very low interest rates in yen and then… reinvest those funds… in higher yielding assets," and "the carry trade flows into the U.S. market… it provides liquidity and funding not only for U.S. bond market… but also the stock market." So if the yen craters and that trade unwinds, "investors worldwide would sell treasuries and treasury yields would go up even more." His conclusion: the U.S. intervention "signaled to the markets that the treasury was willing to directly intervene in foreign currency markets in order to stop the 10 year yield… from climbing higher. So this is an indirect form of yield curve control." (Hanke is not sanguine on yields regardless. He thinks the 30-year "could at least go up 50 basis points from where it is now," citing the war in Iran, sticky inflation, and the fiscal deficit.)

That the intervention happened at all matters, and the JPMorgan FX desk connected it to everything else. As one strategist put it on At Any Rate (Aug 21): "there is a very clear sequencing now between… FX intervention, treasury opening up its FEMA repo facility to Japan to backstop treasuries in case of more intervention… the surprising change in forward guidance on treasury issuance… and now this," the buyback. Every one of those moves, he noted, is "either kind of like neutral to dollar negative." A Treasury that keeps reaching for new tools is, at the margin, a Treasury that "deserves maybe a little bit of premium in the dollar," meaning the currency should trade a touch cheaper to reflect the unpredictability.

The pundit version was more colorful. Luke Gromen of Forest for the Trees, on Futures Edge (Aug 20), described the deal in plain language: Japan's Treasuries "are what they're supposed to be for. When you hold an asset in reserve, it is your reserve for a rainy day. It started raining in Japan. They went to go sell their treasuries to defend the yen. And Bessent said, no, no, no… Don't do that. I'll lend you more dollars," pushing emergency swap lines instead. Gromen's framing is the "damned if you do" trap: "yen gets too strong, the yen carry trade blows up. Dollar gets too strong, dollar carry trade blows up," so the only stable path is to keep the dollar-yen exchange rate inside a range by "alternating liquidity in yen liquidity, dollar liquidity." He calls the whole thing "a soft form of yield curve control," and reads the reliance on swap lines as a tell: "that treasury market is not as deep and liquid as it's been advertised for our whole careers." (Worth flagging: Gromen is a pundit with a loud gold call, he thinks gold is going to $7,800, so weight his mechanics more than his price targets.)

A more radical version of the same idea came from BitMEX founder Arthur Hayes on Unchained (Aug 21), who argued the Fed will ultimately have to expand its balance sheet and use its repo facilities to shovel dollars to Japanese investors bringing money home, precisely to stop a Treasury-market accident. That is a speculative call from a crypto founder, not a base case, but it rhymes with what the sober desks are describing: a plumbing problem in dollar funding that Washington keeps patching.

Why this matters for the dollar: the yen is the world's great funding currency, and Japan is one of the largest foreign owners of U.S. Treasuries. If Tokyo is ever forced to sell those bonds to defend its currency, it hits U.S. yields and the dollar at the same time. This week we learned Washington will actively work to prevent that, which is dollar-supportive in the short run (fewer forced Treasury sales) but is also, quietly, another form of intervention in a market that is supposed to be free.

The slow leak nobody live-tweets: the dollar's reserve crown

Step back from the week's noise and there is a longer, quieter story, the gradual erosion of the dollar's dominance. The best guide to it is Barry Eichengreen, the Berkeley economist who literally wrote the book on reserve currencies (Exorbitant Privilege), who appeared on The Capitalism and Freedom in the Twenty-First Century Podcast (Aug 20).

His numbers are the ones to remember. The dollar's share of global reserves has fallen "from more than 70 percent at the turn of the century to less than 60 percent now." On top of that, "the share of U.S. treasuries held abroad has been going down slowly but steadily over the last decade," and the "convenience yield," the discount America enjoys because everyone wants dollars, "seems to be evaporating as well."

What makes his take credible is that he is careful about the causes, and he named three things a reserve currency needs: a healthy economy, sound domestic politics ("rule of law, separation of powers, control of corruption"), and reliable international alliances. It is the last two he is worried about for America. "Central banks… prefer to hold and use the currencies of their alliance partners," he said, which is why Japan and South Korea have long held outsized dollar reserves, and why he frets that when "our president announces that he's going to scale back joint military exercises with South Korea, that will blunt the incentive for the Bank of Korea… to hold a disproportionate share of their reserves in dollars." Foreigners "are asking questions about separation of powers, rule of law, control of corruption… in the United States. And that is prompting them to worry about de-risking against the dollar."

Crucially, he does not think the dollar is being dethroned. The money leaving it, he said, has mostly gone not to the euro or China's renminbi, which is still "less than 2% of global FX reserves" and hamstrung by the lack of rule of law, but to "non-traditional reserve currencies… Canada, Australia, New Zealand, South Korea, Singapore, Sweden, Norway." And he is honest about his own record: "I've been predicting a movement toward a more multipolar international monetary system for a long time. And I'll keep predicting it until I'm right." The move away from the dollar has been "slower than I would have anticipated 15 years ago."

His host pushed back hard, which makes the segment a genuine debate rather than a lecture: he sees "really not much evidence at all of a decline in the use of the dollar," noting it is still near 60% of reserves, "above what it was… in the mid-90s." Both things are true. The dollar is still king; the crown just fits a little looser than it did.

The gold-bug corner adds the exclamation point, if you take it with salt. On Thoughtful Money (Aug 18), fund manager Jonathan Wellum said central banks are "hoovering up the gold" and that it has "become a larger asset than the U.S. Treasuries in terms of their reserve assets." And on The Flying Frisby (Aug 23), analyst Alasdair Macleod argued central banks are "getting the hell out of credit" and into gold, noting China has been trimming Treasuries "since 2014" while adding gold. These are the loudest, most bearish framings, but they point at the same slow drift Eichengreen documents with cooler numbers.

Tomorrow: Warsh at Jackson Hole

Jackson Hole opens today; new Fed chair Kevin Warsh gives his first big speech there tomorrow morning. It looms over everything above, because the FX desks agree the dollar's next move hinges on whether the Fed stays hawkish, and Warsh is the man who decides the Fed's tone.

The catch, as the WSJ's Fed reporter Nick Timiraos put it on WSJ's Take On the Week (Aug 23), is that Warsh's communication style is "evasive by design." He declines to spell out not just where rates are going but even his economic outlook. Columbia's Frederic Mishkin worried aloud that Warsh could revert to Greenspan-era opacity instead of clearly explaining the Fed's thinking. The JPMorgan desk framed the stakes for currencies precisely: Jackson Hole "is going to be a good marker for where Chair Warsh's head is at," even though "the topic of the event is probably not conducive" to a clear signal, and the missing piece for a firmer dollar would be exactly the kind of hawkish tone he might, or might not, deliver. If he stays cryptic, the dollar's tug-of-war just rolls into the September jobs report and inflation print unresolved.

The debate

Is the dollar's slide a regime change or a washout? The loudest voices say regime; the desks that trade it say washout. The bearish case is everywhere: an activist Treasury openly wanting softer yields, gold ripping, and a "debasement" trade back on. But the practitioners were strikingly cautious. JPMorgan's FX team said the bearish story "crumbles" if U.S. data holds up (Sandilya) and that a bigger move needs the Fed's terminal rate to fall, which the market is not pricing (Chandan). BNY's Yu will not short a currency with the highest real yields and "no alternative." Even the bulls-on-stocks (Roland) frame dollar weakness as risk-on fuel, not a fire. The honest synthesis: lower near-term, but this is a positioning unwind, not the end of the dollar, barring a genuine U.S. growth scare.

Was the yen intervention dollar-positive or dollar-negative? Both, depending on your time horizon. Near-term it is supportive: by lending Japan dollars through swap lines, Washington prevents forced Treasury selling that would spike U.S. yields and hit the dollar (Hanke, Gromen). But strategically it is another intervention in a market meant to be free, and the JPMorgan desk argued the whole run of Treasury actions is "neutral to dollar negative" and deserves a small risk premium. The tell everyone agrees on: reaching for swap lines suggests the Treasury market is less deep and liquid than advertised (Gromen).

Is the dollar losing its reserve crown? It is leaking, not collapsing, and the split is about pace, not direction. Eichengreen documents a real, two-decade slide (70%+ to under 60% of reserves) and a rule-of-law worry driving central banks to "de-risk." His own host counters that the dollar is still near 60% and above its mid-90s share. The gold camp (Wellum, Macleod) shouts that the exits have begun. Reconciled: the money leaving the dollar is trickling into gold and small, well-run currencies, not the euro or renminbi, and the process is measured in years, not headlines.

The trades in play

Where podcasts named actual expressions this week (these are speakers' own views and positioning, not advice):

Do not be aggressively short the dollar. Geoffrey Yu of BNY would only short it in a benign global risk-on world where the dollar becomes a funder, and today its real yields are too high for that. His bias sits on "the right-hand side of the smile," a firmer dollar (Bloomberg Surveillance, Aug 21).
Lean mildly dollar-negative, but do not chase. JPMorgan's FX desk has been structurally bullish the dollar since mid-May on the Fed's carry advantage; this week they tilted a touch bearish on the buyback but said the positioning washout "is kind of done" and will not chase it "given that we have key events coming up" (At Any Rate, Aug 21).
Short-duration bonds, cash, and some gold. Rebecca Patterson prefers cash and money-market-like maturities over long bonds, "you get something for it, but is it worth the risk?", with gold as a diversifier, and sits in the dollar "range camp" (Bloomberg Surveillance, Aug 21).
Stay risk-on while the dollar is soft. Emily Roland of John Hancock is riding the weak dollar into international equities and the "great rotation" out of mega-cap tech toward industrials and utilities, the "picks and shovels" of the AI build-out where "the earnings bar is easier" (Bloomberg Surveillance, Aug 21).
Own gold and silver on the "soft YCC" read. Luke Gromen and the Futures Edge hosts bought precious metals off the yen intervention, reading it as the leading edge of yield-curve control and inflation (Futures Edge, Aug 20).

Read-throughs

The dollar has a rate floor. As long as the market still prices Fed hikes (~35–37bp over the next year, per Chandan) rather than cuts, the dollar keeps a carry advantage no other major currency can match right now. The two data points that could knock that floor out are the September jobs report and the August inflation print. Watch those, not the buyback headlines.
The yen is now a U.S. policy variable. Washington has shown it will intervene to keep the dollar-yen cross in a "safe" range and lend Japan dollars rather than let it dump Treasuries. That caps a real tail risk to U.S. yields, but it means a yen crisis is now a fast transmission line into the Treasury market and the dollar. Watch the Bank of Japan and dollar-yen closely.
Reserve diversification is a slow tailwind for gold and small currencies, not a dollar crash. Eichengreen's data says the drift away from the dollar is real but glacial, and flows toward gold and well-run minor currencies. Treat "de-dollarization" as a decade-long trickle, not a catalyst.
Warsh's tone tomorrow is the swing factor. A hawkish, clear speech would hand the dollar the support the FX desks say it is missing. A cryptic "30,000-foot" speech leaves the tug-of-war unresolved into the September data. Either way, the desks are watching the Fed, not the Treasury, for the dollar's next real move.

What changed this week

The FX practitioners broke from the macro chorus. The loud story was "sell the debased dollar." The banks that actually trade it, JPMorgan and BNY, said the move is shallow, positioning-driven, and will not extend without a Fed capitulation that is not in the price. That is a meaningful divergence between narrative and desk positioning.
A yen intervention entered the dollar story. The first U.S. yen intervention since 1998, plus swap lines to keep Japan from selling Treasuries, reframed Japan from a sideshow into a core dollar-and-rates variable, and revealed a Treasury market more fragile than its reputation.
De-dollarization got a sober anchor. Instead of gold-bug shouting, the week's best reserve-currency discussion came from Eichengreen, with hard numbers (70%+ to under 60%) and a genuine on-air debate about whether that is erosion or noise. The takeaway: real, slow, and not toward the euro or renminbi.

Levels and figures referenced are drawn from mid-to-late-August 2026 U.S. sessions and, where noted, are speakers' own claims rather than confirmed data: the dollar selling off sharply after the Treasury's surprise buyback expansion; the buyback adding roughly $14bn this quarter against a ~$32tn Treasury market; the U.S. Treasury's estimated euro-yen intervention of only around half a billion euros; the market pricing ~35–37bp of Fed hikes over the next year; JPMorgan's Feroli core-PCE forecast of 0.32%; TIPS breakevens ~2.25–2.27%; a reported loss of ~23,000 jobs last month; the 30-year Treasury near 5.24% (Patterson) and the 10-year near 4.72% (Hanke); the dollar's global reserve share falling from >70% at the turn of the century to <60% now, with the renminbi under 2%; U.S. debt-to-GDP around 100% and projected toward 120% over the next decade; and total federal debt near $40 trillion. Key dates ahead: the Jackson Hole symposium Aug 27–28 with Warsh's speech Friday Aug 28; the August jobs report Sept 5; and the Sept 16–17 FOMC.