Newsletter · · Ashutosh Agarwal

Warsh Takes the Stage and the Dollar Holds Its Breath - G10 FX Weekly - Week of August 27, 2026

G10 FX Weekly for the week of August 27, 2026. Podcast synthesis on why Kevin Warsh's Jackson Hole debut has become the single swing factor for every major currency, MUFG's read that the dollar's worst four weeks since Liberation Day are not over, RenMac's math on why the Treasury buyback cannot cap yields, and a September Bank of Japan hike now roughly 80 percent priced.

G10 FX Weekly

Week of August 27, 2026: Warsh Takes the Stage and the Dollar Holds Its Breath

On Monday the story was an "activist" US Treasury quietly buying its own bonds. By this morning the story has narrowed to a single event: tomorrow, Friday, at 10 a.m., new Fed chair Kevin Warsh gives his first speech at Jackson Hole, the annual gathering of central bankers in Wyoming.

That speech has become the most anticipated the Fed has produced in years, and the entire currency market has essentially stopped to wait for it. The dollar is sitting at a three-month low, its weakest since May. The euro is holding near the top of its one-year range, around $1.17. The pound is near $1.36. The dollar buys about ¥159, and the yen is quietly firm. Gold is around $4,580, silver is pushing $70, and Bitcoin just ripped to roughly $78,000.

Here's why one speech matters so much. For the first time in a decade, the fight at the Fed is not "hike or cut." It is about whether the Fed will even tell markets how it thinks, and the man in charge has decided the answer is largely no. That single choice is now the biggest swing factor for every G10 currency. Let's get into it.

TL;DR

  • Tomorrow is the whole ballgame. Warsh's Jackson Hole debut is, in the words of the WSJ's Take On the Week, "one of the most looked ahead to speeches at the Fed in many years," not because of the next rate move, but because Warsh is trying to stop telling markets what the Fed is thinking.
  • The dollar took its biggest hit in months. MUFG's Derek Halpenny, on The MUFG Global Markets Podcast, notes the dollar fell nearly 3% over four weeks, its steepest drop since the aftermath of "Liberation Day" in 2025, and warns that if bond yields get capped, "the next lever… would be FX." Translation: the currency is where the pressure comes out next.
  • The rate debate has flipped into a genuine fight. RenMac's Neil Dutta argues "hikes are more likely than not… the markets are mispriced" (RenMac Off-Script). David Rosenberg says the opposite, that the next move is cuts (Wealthion). Warsh's speech tips the balance.
  • The one clean dollar-bull voice: BNY's Geoffrey Yu on Bloomberg Surveillance: "There is just no alternative right now. Where else do you go? Europe, real yields are even worse." Do not short the dollar aggressively when US real rates are this high.
  • The buyback cannot actually fix yields. RenMac's math: the Treasury's bond buybacks add up to ~$32bn against ~$240bn of new supply, so "it's just not enough." Re-anchoring long yields would take about $100bn a quarter, which drags in the Fed and bumps against the 1951 law that keeps the two institutions separate.
  • Sterling gets a rare star turn. Panmure Liberum's Simon French on NAB Morning Call: the Bank of England stays on hold at 3.75% until it sees the October 28 budget, and despite the doom-mongering, "the UK hasn't got a funding problem."
  • A September Bank of Japan hike is now the base case, about 80% priced, per Halpenny, and rising energy prices could force both the Fed and the BoJ to move.
  • The franc went quiet. After last week's spike to an 11-year high, there was no fresh Swiss National Bank chatter this week, a notable silence worth flagging, not filling.

What's new

1. The market has stopped trading and started waiting for Warsh

Everything this week bends toward one moment. Warsh speaks at Jackson Hole tomorrow, and the reason the market is so tense is not the usual "will they, won't they" on rates. It is that Warsh is deliberately changing what the Fed says at all.

The clearest explainer came from Nick Timiraos, the Wall Street Journal's chief economics correspondent, on WSJ's Take On the Week (Aug 23), alongside former Fed governor Frederic Mishkin, who served with Warsh during his first stint at the Fed. Timiraos, who sits in the front row of these press conferences, described the new chair bluntly:

He's not giving long answers. He's evasive by design… he doesn't think it's the Fed's job to walk them through their next move.

The problem, Timiraos explained, is that Warsh is not just declining to promise where rates go, the part most economists applaud. He is also refusing to explain how he reads the economy: the trade-offs, and why the Fed held rates steady in July "even though there were three people who wanted to raise them." Markets, he said, are "unsettled or confused, not by what he is saying, but by what he is not saying." The verdict on his tight-lipped July press conference was harsh: it "did not pay off."

Mishkin, who helped build the Fed's modern communication playbook, put his finger on the exact term the whole market is now obsessing over, the reaction function, plain English for "the rule that tells you how the Fed will respond as the economy changes." Get that across, he argued, and you barely have to do anything else:

If you get the markets and the public to understand your reaction function… the markets will do a lot of the work and heavy lifting for the Federal Reserve.

His worry about Warsh is pointed: the new chair "talks as if he wants to go back to what was true under Alan Greenspan," the old cryptic, trust-me-I'm-the-maestro style. Why it matters for FX: when nobody can price the Fed's next reaction, they demand a bigger cushion to hold long-dated US bonds. That pushes long yields around violently, and, as we will see, a jumpy bond market is now bleeding straight into the dollar.

2. The dollar just had its worst stretch since Liberation Day, and the desk view is it is not done

The sharpest professional read on the currency came from Derek Halpenny, MUFG's head of markets research for Europe, on The MUFG Global Markets Podcast (Aug 21). He measured the damage: the dollar fell nearly 3% over four weeks, the biggest such drop since the period right after the 2025 "Liberation Day" tariff shock. And he flagged the common thread: both times, it was Washington's own policy moves that did it.

His read is that this fits the administration's deepest instinct. A cheaper dollar shrinks the trade deficit, and shrinking the trade deficit is one of Trump's most ideological goals. But Treasury Secretary Scott Bessent, he argued, now has to actually deliver policy rather than gestures, and Halpenny does not expect much:

Trump himself is just not going to go down the road of anything in terms of notable fiscal consolidation. So we're probably going to get… tinkering around the edges.

Think spending freezes, hiring suspensions, procurement reviews, low-hanging fruit that will not touch the deficit. And here is the line that should matter most to anyone with a currency position: "If yields are contained, the next lever… would be FX." In other words, if the Treasury succeeds in pinning down bond yields, the strain simply reappears somewhere else, and that somewhere is the dollar. Halpenny sees "a couple of different avenues in which we could still see US dollar weakness."

That gloomy view was echoed by Peter Boockvar on The David Lin Report (Aug 21), who is "not bullish the dollar" with the dollar index at a three-month low and sees the 10-year yield pushing back above 5% by year-end. And Danielle DiMartino Booth, on the same show (Aug 20), captured the raw reaction to the buyback: the dollar index dropped 80 basis points, gold jumped 3%, and Bitcoin popped 5.5% in a single move.

3. The buyback is real, but the math says it cannot cap yields

Monday's issue flagged that the Treasury's bond-buying looked tiny. This week, RenMac's team on RenMac Off-Script: Breaking Glass (Aug 21) did the arithmetic that proves it, and, more importantly, showed why the Treasury is trapped.

The buybacks were upsized from a cap of $2bn per operation to $4bn. Stack that up over a quarter and you get roughly $32bn, against about $240bn of new bonds the government needs to sell. As they put it, "it's just not enough." What would actually re-anchor long-term yields? "Something of the order of 100 billion" a quarter.

But here is the elegant trap: funding $100bn of long-bond buying means issuing a flood of short-term Treasury bills, which pushes up short-term rates, which drags in the Federal Reserve, whose whole job is controlling those short-term rates. Follow the chain and the bills end up back on the Fed's balance sheet, which is "indirect debt monetization" and "contrary to the Treasury-Fed Accord of 1951," the agreement that keeps the government's borrowing arm and the money-printing arm separate. One host summed it up perfectly: "Newton's third law still applies… for every action, there is an opposite and equal reaction." The Treasury can lean on the long end, but only so hard before it forces a fight with the Fed. For currencies, that ceiling matters: it means the buyback is more signal than firepower, and the pressure keeps leaking into the dollar.

4. Sterling's quiet strength: "the UK hasn't got a funding problem"

Amid all the American drama, the pound got the week's most substantive standalone treatment, from Simon French, chief economist at Panmure Liberum, on NAB Morning Call (Aug 21).

His base case: the Bank of England stays on hold at 3.75% and will not move before the big fiscal event, the budget on October 28. July inflation came in at 2.9% (nearly a full point above target) with core hotter than expected, and it will climb further into the autumn on energy and food. Three of the nine rate-setters wanted a hike, but Governor Andrew Bailey warned people not to "leave this room thinking the Bank of England is edging towards a hike." The committee, French says, wants to see what new Prime Minister Andy Burnham and Chancellor John Healy put in the budget before doing anything.

The more interesting call was his push-back on the "gilt vigilante" panic, the fear that bond investors will punish the UK for borrowing too much. French was withering about the commentary:

The UK hasn't got a funding problem. It issued debt this week for 10 years at 5.15%, which was the highest in almost 20 years, but the auction was three and a half times covered. There's no shortage of buyers.

His nuance: gilts are not struggling to find buyers, they are simply competing, against other governments' bonds and against the wall of corporate debt the big US tech hyperscalers are issuing to fund AI. That is a very different, and less alarming, story than a buyers' strike. Why it matters: it argues sterling's risk is a slow inflation grind, not a sudden crisis, and it is a big reason a "short US, long UK" trade showed up as a contrarian favorite in Bank of America's latest fund-manager survey, which French flagged approvingly.

5. Japan: a September rate hike is now the base case

The yen has quietly firmed back up, and the reason is increasingly concrete. Halpenny (MUFG) put a hard number on it: a Bank of Japan rate hike is now priced at about 80% probability, and he expects them to deliver, since "there's no reason why they shouldn't." He thinks Japan still needs another 50–75 basis points of hikes to reach a genuinely neutral setting, and a senior BoJ deputy governor speaks next week, likely to reinforce those odds.

There is a wildcard pulling in the same direction: energy. Halpenny warned that if oil keeps rising toward $100 a barrel, with Trump "playing the long game" squeezing Iran and tension around the Strait of Hormuz, the Fed itself may be forced to hike, and the BoJ, which meets a couple of days after the Fed, "will definitely act if the Fed have acted." Two hawkish central banks at once would be a real jolt for the yen.

The debate

This week the podcasts served up an unusually clean two-sided fight. Steel-manning both:

The dollar keeps falling, and carry still works as the dollar fades. This is the majority view. Halpenny (MUFG) says the pressure has to come out in FX if yields are pinned; Boockvar and DiMartino Booth see a dollar at three-month lows with more downside; and the buyback, per RenMac's math, is too small to change the trajectory. Add a near-certain BoJ hike, and the funding currencies (yen) firm while the dollar leaks. In this world the euro grinds higher and sterling holds.

Do not short the dollar, because there is nowhere else to go. The best counter came from Geoffrey Yu of BNY on Bloomberg Surveillance (Aug 21). His argument is coldly practical:

There is just no alternative right now. Where else do you go? Europe, real yields are even worse, some negative.

Yu's point is that it is simply expensive to bet against the dollar, because US growth is still strong and US real interest rates are still high, so you pay a lot to fund a short position. He leans on the old "dollar smile" idea (from strategist Stephen Jen): the dollar strengthens both when the US booms and when the world panics, and only weakens in the benign middle. Tellingly, he notes his clients went into the summer owning US assets with no currency protection and have only in the last two to three weeks started adding hedges, so this may be an ongoing adjustment, not a finished one.

And underneath both sides sits the rate question itself, which is genuinely unresolved. Neil Dutta of RenMac says "hikes are more likely than not… the markets are mispriced," pointing to rising oil, fatter refining margins, and insatiable AI power demand. David Rosenberg on Wealthion (Aug 21) says the exact opposite: with real growth stuck around 1.4% and four straight sub-1.5% quarters building slack, the next move is a cut, and Warsh is kidding himself by calling the economy "solid." Markus Thielen on Markets Outlook (Aug 20) splits the difference: no hike, but no help either. Whatever Warsh signals tomorrow lands directly on this fault line, and on the dollar.

Trades in play

  • The pain trade is short-dollar, but it is crowded and expensive. Yu's warning is the one to respect: with US real rates high, funding a dollar short costs you carry, and the dollar's "smile" means it can rally on either a US boom or a global scare. Size accordingly into a binary event.
  • Long yen into the Bank of Japan. With a hike ~80% priced and energy potentially forcing the Fed's hand too, the yen has a genuine catalyst. On Saxo Market Call (Aug 21), Saxo's John Hardy said that as long as things stay "fairly orderly," and provided Japan's own bond market behaves, "there could be room for yen to continue to thrive."
  • "Short US, long UK and Europe" on valuation. French flagged this as Bank of America's contrarian fund-manager trade, a hedge against stretched US equities rather than a currency call, but one that quietly supports the pound and euro.
  • Hard assets as the real short-dollar expression. Hardy's read that "the dollar versus hard assets is certainly suffering" is playing out live: gold cleared its 200-day average near $4,500 to reach ~$4,580, silver is pressing $70, and Bitcoin is up roughly 17% to ~$78,000. Axel Merk, on Mining Stock Daily (Aug 21), framed the buyback as exactly the kind of debt "patch" that "gold loves."

Read-throughs

  • EUR/JPY. Hardy flagged the cross at 185.5, "a crazy level," in his words, but with "not yet a technical reason for the bears to feel like they should get involved." A hawkish BoJ is the thing that would finally crack it.
  • The euro's own story is mostly about energy and the ECB not cutting. On the NAB podcast, French noted that ECB chief economist Philip Lane said this week eurozone inflation will "hover around 3% for the rest of the year," which argues against more rate cuts and is quietly euro-supportive. But he and Halpenny both flagged the risk: European natural-gas prices (TTF) are at new highs since the Middle East conflict began, and record heat and drought are pushing up food costs. That is stagflation-flavored, bad for growth and sticky for inflation.
  • Bunds, gilts and Treasuries are all being repriced together. French's point that gilts, US Treasuries, and hyperscaler corporate bonds are all "competing for eyeballs… competing for capital" is the read-through that ties the whole complex together: this is a global contest for scarce demand for long-dated debt, and the US is the one paying up hardest.
  • Australia and the carry baskets. Hardy noted the Aussie "coming in bid… more strongly" despite soft jobs data, helped by ripping metals prices, a small sign the high-yielders can still work when commodities cooperate, even as the classic dollar-funded carry stays expensive.
  • The franc: silence. After last week's surge to an 11-year high, there was no fresh Swiss National Bank commentary in the podcasts this week. Worth noting because the pressure has not gone away, it is just off the microphone for now.

What changed

The story genuinely moved this week. Monday, Jackson Hole was an event on the horizon; now it is tomorrow morning, and the dollar has drifted back down to its lows to meet it. The buyback debate sharpened from "is it big enough?" (no) to "can it ever be big enough without breaking the wall between the Treasury and the Fed?" (RenMac says no). And the rate call, which had been quietly leaning toward "on hold forever," cracked open into a real hike-versus-cut argument, with energy prices emerging as the swing factor that could force not just the Fed but the Bank of Japan to move. Everything now points at one podium in Wyoming.