Newsletter · 2026-09-22 · Ashutosh Agarwal

Warsh Defied Trump, and the Dollar Firmed - The Dollar Brief - Week of September 22, 2026

The Dollar Brief for the week of September 22, 2026 (podcasts recorded September 15 to 21, 2026): a synthesis of the week's macro and FX podcasts on why the dollar firmed after Kevin Warsh's Fed hiked unanimously despite Trump's demands for cuts, the warning that the strong-dollar trade is now crowded, Treasury Secretary Bessent's euro-yen intervention and bond buybacks, a long end driven by trust and AI-fueled bond supply, Japan's carry-trade fault line, and gold's new role as a strategic asset.

The Dollar Brief

Week of September 22, 2026: Warsh Defied Trump, and the Dollar Firmed

Here is the twist that ran through this week's podcasts: everyone keeps writing the dollar's obituary (the debt, the de-dollarization, the gold-buying) and yet the dollar just had a firm week and sits near its highs. Why? Because the new Fed chair, Kevin Warsh, raised interest rates when the President wanted them cut, out-hawked every other central bank on the planet, and in doing so reminded the world the Federal Reserve can still say no to the White House. A central bank that visibly keeps its independence is a magnet for money, and money noticed. The catch, and this is the freshest argument of the week, is that the bet on a strong dollar is now so crowded it may be running out of buyers. So the real question shifted from "is the dollar doomed?" to something more useful: the dollar is firm for a good reason right now, but is that strength durable, or is it a trap? Let's get into it.

(Quick plain-English glossary, skip it if you live in this stuff. The "dollar" is the US dollar; the "DXY" measures it against a basket of other rich-world currencies. To be "long" something is to bet it rises; "short" is to bet it falls, and a "crowded" trade is one nearly everyone has already made. A "Treasury" is a loan to the US government; its interest rate is its "yield," and yields rise when bond prices fall. The "2-year" tracks what the Fed is expected to do soon; the "10-year" and "30-year" (the "long end") set mortgage and corporate borrowing costs. A "real" yield is the yield after subtracting inflation. "Term premium" is the extra yield lenders demand for the risk of lending far into the future. A "breakeven" is the inflation rate bond prices imply. The "carry trade" is borrowing cheaply in a low-rate currency (for years, the yen) to buy higher-yielding things elsewhere; "unwinding" it means selling those things and buying yen back. The "BOJ," "BOE" and "ECB" are the central banks of Japan, England and the euro area; the "FOMC" is the Fed's rate-setting committee. "Intervention" is a government buying or selling a currency to move its price. A "stablecoin" is a digital token meant to be worth exactly one dollar, backed by real dollar assets. "T-bills" are short-term US government IOUs. "De-dollarization" is the world slowly using the dollar less. "Reserves" are the foreign-currency savings central banks hold. "Fed independence" means the central bank sets rates free of political orders.)

TL;DR

The dollar is firm because Warsh proved the Fed still says no to the President. The Fed hiked a quarter-point to 3.75–4% on a unanimous 12–0 vote despite Trump publicly demanding cuts; a Wall Street Journal reporter's verdict: "so far, it tells you he is going to be independent… no one can call Kevin Warsh a sock puppet if he's raising interest rates and Donald Trump is saying, I didn't want you to do that" (The Journal., Sep 17).
But the dollar long is now dangerously crowded, warns Andreas Steno Larsen. "The market is very, very keen on trading the dollar high… a very exhausted positioning already." The tell: even a hawkish Fed couldn't push it higher, which he reads as a sign of a Q4 reversal (Macro Mondays, Sep 21).
J.P. Morgan's FX desk says: don't fade it yet. History shows "the dollar doesn't always peak with the first Fed hike… there tends to be some sort of serial correlation and momentum higher," and a Fed terminal rate near 4.9% is "not difficult to envision" (At Any Rate, Sep 18).
Treasury Secretary Bessent's fingerprints are all over the currency markets. In July he intervened to prop up the yen (bizarrely by selling euros, not dollars) because his real worry is keeping US borrowing costs down, not helping Japan (The Rest Is Money, Sep 20).
Portfolio manager Dan Niles is defensive into the midterms. He can see the 10-year yield hitting 6% and has "a lot of shorts on," citing a median 10% market drawdown into November in midterm years, "double what it normally is" (Squawk on the Street, Sep 15).
The rise in long yields isn't about inflation, it's about trust, says Harley Bassman. The 10-year inflation breakeven is flat at 234 basis points even after big rate rises: "no one cares about inflation." Rates are climbing because of "the going concern of holding U.S. dollars as a core asset" (Macro Voices, Sep 17).
A New York Fed official quantified the wall of Treasury supply. The $30 trillion Treasury market is set to grow by "another $26 or $27 trillion over the next 10 years," even as its steadiest buyers give way to "fickle" high-speed traders (Macro Musings, Sep 21).
The AI build-out is now crowding out the government in the bond market. BNP Paribas turned bearish on corporate credit over "bond abundance" (hyperscalers borrowing to fund data centers), which is "just the beginning" (Bloomberg Surveillance, Sep 21).
Washington is now treating gold as a weapon, not just an investment. Trump designated gold a "critical mineral" and the Treasury named it a sanctionable sector; central banks have piled in since the US froze $300 billion of Russian reserves in 2022 (ITM Trading, Sep 16). (Gold-dealer venue, weigh accordingly.)
China's quiet plan: keep using the dollar, but stop saving in it. It is building "an alternative, not a substitute": recycling trade surpluses into gold and hard commodities rather than Treasuries (Thoughtful Money, Sep 15).

What's New

The real reason the dollar is firm: Warsh said no to Trump

Start with the event that everyone underrated. On September 16 the Fed raised its key interest rate a quarter-point to 3.75–4%, and it did so unanimously, 12–0, even though President Trump had spent weeks demanding the opposite. "The United States is so strong, we should be paying the lowest interest rate in the world," Trump said days before the meeting. Warsh hiked anyway, describing it not as tightening the screws but as removing support: "I would be hard pressed to describe broad financial conditions as restrictive… so we removed a dose of accommodation" (Bloomberg Businessweek, Sep 16).

Why does this matter for the dollar? Because a currency is, at bottom, a promise, and the value of that promise depends on whether the people managing it can be trusted to defend it against politicians who want easy money. That is exactly what The Journal spelled out. Trump, the reporter recounted, all but waved the white flag before the meeting, telling Warsh, "you might as well vote with the board because it's not going to matter… the board is very hostile. They're very political… a bunch of politicians. Do whatever you need to do." When Warsh then hiked, the verdict wrote itself: "So far, it tells you he is going to be independent. Donald Trump didn't want him to raise interest rates and he did… Actions speak louder than words… no one can call Kevin Warsh a sock puppet" (The Journal., Sep 17).

Bloomberg's Michael McKee added the market mechanic that ties independence back to the dollar. There has "always going to be this credibility question surrounding Warsh," he said, "because he was put in the job by a man who said he wanted Kevin Warsh because he would deliver lower interest rates. And that may be one reason that he was as hawkish sounding as he was." McKee also flagged the number that underpins a firm dollar: "the 10-year real rate is basically at an 18-year high now." A currency offering the highest inflation-adjusted yield in nearly two decades, run by a central bank that just proved it won't be bullied, is a currency with a floor under it (Bloomberg Businessweek, Sep 16).

The catch: the strong-dollar bet is now crowded

Here is the pushback, and it was the most original argument on this week's podcasts. Andreas Steno Larsen thinks the dollar's strength has become its own weakness: too many people are already leaning the same way. "The market is very, very keen on trading the dollar high, at least when you look at speculants right now," he said. His evidence isn't a chart pattern; it's the market's failure to respond to good news for the dollar: "even with news that should push the market in a certain direction, we're not really getting a large move… that is, to me, a symptom of a market that has a very exhausted positioning already." The clincher, in his telling: "the day after the Fed hike and a pretty hawkish message overall from Warsh, markets just started accelerating again," which he reads as a crowd already all-in. His call is for a risk-on fourth quarter, which typically means a softer, not stronger, dollar (Macro Mondays, Sep 21).

Steno also traced the year's quiet "short-dollar proxy trade" (visible in the crypto and gold rallies) back to one man: "It all dates back to Scott Bessent admitting to the long end of the yield curve being slightly out of control and his return to a higher pace in the buybacks." In plain English: when the Treasury Secretary started leaning on the bond market to hold rates down, it revived the "debasement" narrative (the fear the government will let the dollar quietly lose value), and that fear has been leaking into anything that isn't a dollar (Macro Mondays, Sep 21).

The banks' currency desks were having none of the reversal call, at least not yet. J.P. Morgan's strategists made the seasonal point directly: "the dollar doesn't always peak with the first Fed hike. In general, for the month or so following the first Fed hike, there tends to be some sort of serial correlation and momentum higher in the dollar… given the underpricing of the dollar leading up to this point." Their caution to the reversal crowd was pointed: "almost at every point this year, this idea that X amount of tightening is priced into the curve and that seems excessive has been subsequently proven incorrect by the price action. So… humility is in order." They floated a Fed peak rate near 4.9% as entirely plausible: higher for longer, and dollar-supportive (At Any Rate, Sep 18). MUFG agreed on direction: after the yen briefly surged in early September, "the markets have come back to its senses," and "there is certainly potential over the short term for dollar-yen to continue moving higher, especially if the broader dollar continues to strengthen" (The MUFG Global Markets Podcast, Sep 18).

Bessent, everywhere: the Treasury Secretary is now a currency trader

If there was a single recurring character this week, it was Treasury Secretary Scott Bessent, and the picture that emerged is of a Treasury behaving less like a bookkeeper and more like a macro hedge fund. The clearest, most level-headed account came from The Rest Is Money, which walked through his extraordinary July move. Japan's yen was falling; a falling yen risked forcing Japan to sell its huge pile of US Treasuries to defend its currency, which would push US borrowing costs up; "the borrowing cost for the United States" is what Bessent actually cares about. So he intervened to strengthen the yen. The strange part: "instead of trading dollar-yen, he traded euro-yen without notifying the European Central Bank." And we know he did it because "a Reuters photographer took a photo of Scott Bessent from behind and he had his little note out and it said, buy… 5 billion JPY, you know, like a shopping list", a leak the host suspects "Bessent wanted… to be photographed" to muscle the market (The Rest Is Money, Sep 20).

The same podcast flagged an even more unusual tool: Bessent has been buying US government bonds directly, using the Treasury's General Account: "basically when money comes in in the form of taxes, before it gets spent, it kind of piles up there." As the host put it, "I thought only central banks had the ability to intervene in debt markets… he's not meant to do this." A New York Fed official confirmed the scale of the Treasury's growing footprint from the inside, noting Bessent "mentioned… doubling the size of the Treasury buyback program" (Macro Musings, Sep 21). J.P. Morgan drew the sharpest read on the July episode: the US intervened in euro-yen rather than dollar-yen precisely because "the top US priority is stability in the US Treasury market, not the dollar-yen market" (At Any Rate, Sep 18).

The provocative (and unproven) version came from investor Gary Brode, who framed all of this as a pre-election play: "the play from the treasury secretary is for the midterms… we've got, what, six, seven weeks until the midterms." He went further, claiming Bessent's public boast that "I have inside information" was a literal tell that he'd bought yen knowing the BOJ would hike: "that move would have been illegal had you and I done it, but I don't think the treasury secretary is going to be indicted… for insider trading in the sovereign foreign exchange market." Treat that as one opinionated read on a Bitcoin-focused show, not fact, but the underlying, well-sourced reality (a Treasury Secretary actively trading currencies and buying bonds seven weeks before an election) is striking enough on its own (Onramp Bitcoin Media, Sep 21).

The long end is a trust problem, and an AI problem

If you want to know why long-term US borrowing costs keep grinding higher (the 30-year sits around 5.3%), the podcasts converged on an answer that has almost nothing to do with the usual villain, inflation. Harley Bassman, the veteran who invented the market's main gauge of bond-market fear, made the case with one number. Despite rates rising about 150 basis points, "the break-even inflation rate… is 235 on average for the last four years. And… we closed at a 234 spread." Translation: the bond market's own inflation forecast hasn't budged. "No one cares about inflation," he argued. "If they thought inflation was the problem… the Fed would widen. It's not. That tells me we're looking in the wrong place." His diagnosis is a slow erosion of faith: rates are rising because of "the going concern of holding U.S. dollars as a core asset, what rate are you willing to take to own dollars." He called a 6% deficit with no war and no recession "gross irresponsibility" (Macro Voices, Sep 17).

Bassman also nailed the supply problem, and it points straight at artificial intelligence. The hyperscalers (the big tech companies building AI data centers) are borrowing on a scale that competes with the US government itself: "$750 [billion] projected borrowing. The Treasury is issuing $2 [trillion]. We're getting close to… 30%, 35% competition for money. The Fed can't stop this… these guys are going to borrow money at any rate. Six, eight, 10, 12. It doesn't matter" (Macro Voices, Sep 17). BNP Paribas is now betting on exactly this: the bank turned bearish on corporate bonds because of "bond abundance… the AI build-out. We have… the hyperscalers, but also other sectors borrowing to fund capital expenditures. And we think this is just the beginning", a flood of new corporate debt that raises the floor under everyone's borrowing costs (Bloomberg Surveillance, Sep 21).

And the buyers of all that government debt are changing in a way that should make anyone nervous. A New York Fed official, Ellen Correia Golay, laid out the arithmetic: the Treasury market was about "$30 trillion at the end of 2025… forecasted to grow by another $26 or $27 trillion over the next 10 years." Meanwhile the steady, deep-pocketed dealers who used to absorb new bonds have been giving way to high-speed trading firms that now do "potentially even the majority of trades in the electronic cash market", liquidity providers who are, in her word, "fickle," and who vanished in the March 2020 panic (Macro Musings, Sep 21). More debt, less reliable buyers: that is the structural weight sitting on the dollar's long-term outlook, even as its short-term yield advantage holds it up.

Japan, still the hidden fault line under the dollar

The Bank of Japan hiked to 1.25% and the yen fell anyway (a story we covered on Friday), but the podcasts this week explained why it matters to the dollar better than anyone, and it comes down to the carry trade. The Rest Is Money gave the cleanest plain-English version: for 30 years the world has borrowed yen at near-zero and bought higher-yielding assets abroad. "If the Treasury is paying 4% and you're borrowing at 1%, you're picking up a 3% interest rate for essentially doing nothing… Japan is the largest lender to the United States." That flow of cheap Japanese money has helped fund America (and quietly supported the dollar) for decades (The Rest Is Money, Sep 20).

The danger is what happens if that reverses. The same host described the carry trade as "picking up pennies in front of a bulldozer" and "being paid to hold a grenade": it "works most of the time, but then every once in a while it does a sharp reset," where "two years' worth of gains… get wiped out in a day," and it unwinds "slowly, slowly, and then all at once." If Japanese rates rise enough to pull that money home, the US loses a huge, patient lender at the worst possible moment. On the intervention math, J.P. Morgan added a sobering limit: Japan has "already conducted about 17 trillion yen of FX intervention this year, and its FX reserve has fallen by roughly 15%," so its "remaining room for further intervention from here is limited" (At Any Rate, Sep 18). MUFG still expects Japan to keep grinding rates higher: another hike "possibly in December and then another one in Q2 next year to take us to 1.75%" (The MUFG Global Markets Podcast, Sep 18).

Gold gets "weaponized," and China keeps buying

The de-dollarization story took a harder edge this week. On a gold-dealer's show (so weigh the source), strategist Graham Summers argued Washington itself has changed how it thinks about gold. He pointed to three signals: Trump's executive order personally designating gold "a critical mineral… vital to national security," Bessent's offhand reminders that the dollar was once gold-backed, and a new sanctions campaign ("Operation Economic Outcast") that "formally named gold as one of five sanctionable sectors." His framing: "gold is no longer just a hedge… it's money. It's a weapon. It's a national security asset." The trigger, he said, was 2022, "when we seized $300 billion worth of Russian reserves… it was right around that time that central banks globally started accelerating their gold purchases," having concluded "the US dollar system has been weaponized" (ITM Trading, Sep 16).

China analyst Peter Alexander gave the most precise version of where this leads, and it's more nuanced than "the dollar is finished." China, he argued, is building "an alternative, not a substitute, to the U.S. dollar system as a reserve asset… and it's predominantly based on gold, not the reserve currency. The U.S. dollar will remain the reserve currency, but the reserve asset where nations will take renminbi surpluses, that's going to be cycled into gold." Beijing is also spending its dollar reserves on "iron ore, petroleum, copper… phosphate," diversifying out of paper dollars and into real things. His tell isn't the exact tonnage China reports but "the direction of travel": more gold every month (Thoughtful Money, Sep 15). It squares with a statistic David Rosenberg cited: the US is only about 20% of global trade yet accounts for over 40% of central-bank reserves, a gap he expects to slowly close, which is why his model portfolio is deliberately 70% inversely correlated to the dollar (Excess Returns, Sep 18).

The Debate

Where the podcasts genuinely disagreed this week.

Is the dollar's strength durable or a trap? This week's central puzzle. The desk view (J.P. Morgan, MUFG) is that first Fed hikes are usually followed by weeks of dollar momentum, the market has under-owned the dollar, and a ~4.9% Fed peak keeps yields attractive, so ride it (At Any Rate, Sep 18; The MUFG Global Markets Podcast, Sep 18). The contrarian view (Steno) is that everyone is already long, positioning is "exhausted," and the failure to rally on hawkish news signals a Q4 reversal lower (Macro Mondays, Sep 21). The referee: whether the dollar can make a new high from here, or just churns.

Did Warsh restore the Fed's credibility, or make the Fed irrelevant? The Journal and Bloomberg say credibility is the story: he defied the President, so "no one can call Kevin Warsh a sock puppet," and that independence is dollar-supportive (The Journal., Sep 17; Bloomberg Businessweek, Sep 16). The skeptics say a 25-basis-point move changes nothing when the real rate is near zero and the Treasury is running the show: "there's nothing the Fed can do that will matter. They're now irrelevant" (Onramp Bitcoin Media, Sep 21). Both can't be right for long: either Warsh's resolve holds when the next hike really hurts, or the market decides the Fed is a passenger.

What is really pushing up long-term yields? Bassman's answer is trust, not inflation: breakevens are flat, so the market isn't afraid of prices, it's afraid of the fiscal path (Macro Voices, Sep 17). BNP Paribas and the New York Fed add the supply story: a tidal wave of Treasury and AI-driven corporate issuance (Bloomberg Surveillance, Sep 21; Macro Musings, Sep 21). Different culprits, same conclusion: this isn't a problem the Fed can hike or cut its way out of.

The Trades in Play

These are speakers' own stated positions and views, not advice. Treat openly-interested sources accordingly.

Fade the crowded dollar, position for a Q4 risk rally. Andreas Steno Larsen thinks exhausted dollar-long positioning sets up a fourth-quarter reversal, and likes AI and crypto "in tandem" as the risk-on expression (Macro Mondays, Sep 21). (Research firm founder.)
Ride the post-hike dollar momentum; go long sterling. J.P. Morgan's FX team leans with near-term dollar strength and is "constructive" on the British pound (a relative high-yielder with beating growth) versus the Swiss franc and Swedish krona (At Any Rate, Sep 18). (Bank FX strategists.)
Play dollar-yen higher short-term. MUFG sees room for dollar-yen to keep rising near-term and has closed its short euro-yen trade after it "run its course" (The MUFG Global Markets Podcast, Sep 18). (Bank FX strategist.)
Sit defensive into the midterms. Dan Niles has "a lot of shorts on," expecting a ~10% drawdown into November, while keeping a few longs (he likes Meta): "the market keeps pitching, but you don't have to take a swing" (Squawk on the Street, Sep 15). (Fund manager, Niles Investment Management.)
Own gold as money, not just a hedge. Graham Summers argues gold has become a national-security asset governments are actively accumulating (ITM Trading, Sep 16); Peter Alexander sees China structurally cycling surpluses into gold (Thoughtful Money, Sep 15). (Gold-dealer venue and a China analyst, weigh the sources.)
Stay short the dollar structurally. David Rosenberg runs a model portfolio "70% inversely correlated to the dollar," betting the gap between the US share of trade and its share of reserves mean-reverts (Excess Returns, Sep 18). (Economist/strategist.)

Read-Throughs

Fed independence is now a dollar asset, and a fragile one. The dollar's firm tone this week rests heavily on one thing: Warsh defied Trump and hiked. That's real support, but it's a promise that gets tested at the next meeting, not this one. As The Journal put it, this was "the easy one." If inflation stays sticky while stocks fall or unemployment rises, the White House pressure returns, and so does the question the dollar is currently answering well.
Watch the positioning, not just the fundamentals. The most useful new idea this week is that the bull case for the dollar is now consensus. When a trade is that crowded, the risk isn't that the story is wrong; it's that there's no one left to buy. A dollar that can't rally on hawkish news is the single clearest thing to watch for a turn.
The Treasury, not the Fed, may be the real currency authority now. Between euro-yen intervention, direct bond-buying from the General Account, a doubled buyback program, and a stablecoin push to create new T-bill demand, Bessent is shaping the dollar and the bond market more actively than any recent Treasury Secretary. That's dollar-stabilizing in the short run and trust-eroding in the long run, the exact tension Bassman is pointing at.
The long end has slipped everyone's grip. Flat inflation breakevens plus a $26–27 trillion decade of new Treasury supply plus an AI-borrowing wave crowding out the government means higher-for-longer long rates are becoming structural. That keeps the dollar's yield support intact, but for the least comfortable reason, because lenders demand more to hold it, not less.
De-dollarization is a savings story, not a payments story. China's move isn't to stop using dollars; it's to stop saving in them, cycling surpluses into gold and commodities. That's slower and less headline-grabbing than a currency war, but it's exactly the kind of quiet erosion that shows up in the reserve data years before it shows up in the exchange rate.

What Changed This Week

The dollar's firm tone got a clear, credible explanation: Warsh's unanimous hike into Trump's opposition reframed the Fed as visibly independent, a genuine, if fragile, support for the currency.
A fresh bear case arrived, from positioning, not fundamentals: the strong-dollar trade is now crowded and "exhausted," setting up a possible Q4 reversal, even as bank desks say ride the post-hike momentum first.
Bessent moved to center stage: the July euro-yen intervention, direct Treasury bond-buying, and a doubled buyback program crystallized into a picture of a Treasury actively managing the currency and the bond market seven weeks before the midterms.
The long-end narrative hardened into "trust plus supply": flat breakevens (Bassman), a $26–27 trillion supply wave and fickle new buyers (NY Fed), and AI-driven corporate issuance crowding out Treasuries (BNP) located the pressure well beyond the Fed's reach.
De-dollarization got sharper and more specific: Washington is now treating gold as a sanctionable, strategic asset, and China's "save in gold, spend in commodities" model came into focus as the real, gradual threat.
The carry-trade risk was made vivid: Japan is the largest lender to the US, its intervention firepower is now "limited," and an unwind would pull patient money home "slowly, slowly, and then all at once."