Newsletter · · Ashutosh Agarwal

The Dollar Is Above 101 but the Strength May Be Everyone Else's Weakness - The Dollar Brief - Week of September 28, 2026

The Dollar Brief for the week of September 28, 2026 (podcasts recorded roughly September 25 to 27): Treasury yields closed at 20-year highs, the dollar index held above 101, and the weekend's sharpest argument said that strength is less about US health than an oil-driven dollar shortage squeezing India, Japan and the Philippines, with the euro doing most of the DXY's work.

The Dollar Brief

Week of September 28, 2026: The Dollar Is Above 101 but the Strength May Be Everyone Else's Weakness

The dollar index finished last week above 101. That sounds like a strong dollar. Look closer and it's mostly a weak euro, a yen close to 160, and a rupee near its record low.

That's the argument Jeff Snider made on Eurodollar University on Saturday. It's the thread running through this issue. Treasury yields ended Friday at their highest close in about 20 years. The Fed still sounds like it wants to hike. And the countries that need dollars most are spending heavily to get them, with little to show for it.

Friday's issue asked when the authorities would step in. Over the weekend the question moved again. Is the dollar strong because America looks good, or because everyone else is short of dollars? The answer matters for anyone betting on where the dollar goes after the October Fed meeting and the November 3 midterms.

(A quick glossary. A "yield" is the interest rate on a bond. It rises when the bond's price falls. The "10-year" and "30-year" are long-term US government bonds, and they drive mortgage and business borrowing costs. A "basis point" is one-hundredth of a percentage point. The "DXY" or dollar index measures the dollar against six rich-country currencies, and the euro makes up more than half of it. "Intervention" is when a government buys or sells its own currency to move the exchange rate. A "real yield" is a bond's yield minus expected inflation. The "carry trade" means borrowing in a cheap currency, like the yen, to buy higher-yielding assets elsewhere.)

TL;DR

  • Yields closed the week at 20-year highs. Peter Schiff: the 10-year "closed Friday at 5.16 percent," with an intraday high of 5.22%. The 30-year closed at 5.49% after touching 5.53% (The Peter Schiff Show Podcast, Sep 27).
  • The dollar is above 101, but Snider says that's the euro talking. The euro is "roughly 58% of the dollar index," so a weaker euro alone "has helped push DXY back above 101." His point is that the real strong dollar is about "dollar funding" being "expensive or difficult to obtain" (Eurodollar University, Sep 26).
  • India attracted $140 billion and the rupee still fell. Japan raised rates to 1.25% and the yen is still sliding toward 160. The Philippine peso hit a record low below 62. Meanwhile the yuan keeps rising, because China earns dollars from exports.
  • Bank of America: the Fed may have to keep hiking until stocks fall. Megan Swiber said the Fed will probably "keep hiking until they get that signal back from the equity market" (WSJ's Take On the Week, Sep 27).
  • Hedge funds lean "on the margin long dollars." That's according to Goldman Sachs' Tony Kim, who also sees the market pricing "about four hikes" (The Markets, Sep 25).
  • PIMCO's base case is one or two more hikes, not a long cycle. Tiffany Wilding called it "a recalibration, not a rate-hike cycle" (PIMCO Pod, Sep 25).
  • Yields stopped following oil. Oil fell on peace hopes, but yields kept rising. Schiff: "bond yields are rising regardless of what happens to the price of oil. That's how weak the bond market is."
  • Chris Whalen: dollar up short term, down long term. "People have been running into dollars because interest rates are rising," but central banks are "holding less dollar securities" (The Julia La Roche Show, Sep 26).

What's new

Where yields ended the week

Friday brought a small pause, not a turnaround. On Friday morning's Squawk on the Street, CNBC's Carl Quintanilla set the scene: "Iran offers the U.S. a potential diplomatic off-ramp. Oil backs off, Brent below 105. Yields softened two after the long bond hit five and a half last night and the 10 got to 522."

By the close, not much had changed. Schiff, recording Saturday, gave the full set of numbers:

  • 10-year: closed at 5.16%, intraday high 5.22%, "the highest on a closing basis in whether it's at 19 or 20 years."
  • 30-year: closed at 5.49%, intraday high 5.53%, "about a 22-year high."
  • 5-year: "closed out the week with a 5-handle exactly at 5 percent."
  • 2-year: got above 4.9% before settling at 4.85%.

His line on the Friday pause: "the only reason that yields stopped rising was that the week came to an end." (Schiff runs EuroPacific Capital and has predicted a bond collapse for years. He is forecasting 8% rates. Treat his numbers as reliable and his forecasts as his own.)

It isn't only America. Schiff noted Japan's 10-year government bond "settled the week above 3%, 3.05," and its 30-year hit 4.13%, a record. Rising yields around the world matter for the dollar. When everyone's rates go up together, the US doesn't get the usual boost from paying more than everyone else.

Mike Santoli, on the same CNBC show, pointed to the speed of the move. The MOVE index, which he described as "the VIX for treasuries," has "curled upward in a vertical way." He read the bond market as "searching for that level that represents the pain threshold." It hasn't found it yet.

The dollar at 101: strength, or everyone else's weakness?

This was the best dollar podcast of the weekend.

Snider's core point is that the usual story, where currencies follow interest-rate gaps, works only some of the time. It works for the euro right now: "If investors expect US dollar rates to stay higher relative to European rates, dollar assets can become more attractive." Because the euro is so big in the index, "the weaker euro has helped push DXY back above 101."

But he says the index is the wrong thing to watch. "A global dollar is not just some currency indexer." It is "an international network of bank deposits, loans, derivatives, trade finance, collateral, offshore balance sheets." When banks get nervous, "credit lines, they get more expensive, maybe even shrink… Dollar supply tightens exactly when energy importers need more of it."

His summary: a strong dollar "doesn't require every currency to fall simultaneously. It means dollar funding is expensive or difficult to obtain for those countries and institutions that need it." (Snider is an independent commentator on global dollar funding, not a trader or policymaker. Treat this as a well-developed view, not inside information.)

He then backed it up with four countries.

India: $140 billion in, and the rupee still fell. The Reserve Bank of India paid a premium for dollars. It subsidized deposits from Indians living abroad, which let some banks offer "dollar deposit rates as high as 7.5%." The message, in Snider's words: "Bring us your dollars and we'll pay you a premium for them." It worked on paper. "More than $140 billion" came in. But converting those dollars flooded Indian banks with rupees, pushing surplus cash to a record 11 trillion rupees (about $115 billion). So the central bank had to drain it, using "at least $10 billion" of currency swaps. It also built up "an estimated $106.7 billion short dollar forward position," which means it has promised to deliver dollars later. And the rupee is "moving back toward its record low." His reason is simple: India imports most of its oil. An Indian refiner buying a million barrels needs $60 million at $60 a barrel and $95 million at $95. "The physical quantity is unchanged," but the need for dollars is "increased by more than 58%."

Japan: rate hikes and intervention, and the yen is still near 160. The Bank of Japan raised rates to 1.25%, "the highest since 1995." In one recent round of intervention, Japan's Ministry of Finance spent "roughly 15.4 trillion yen or more than $96 billion" buying yen "in less than a month," and "around 27 trillion yen during the year." Snider: "Those interventions produced violent rallies, but they failed to lead to lasting changes in direction." The Bank of Japan has now done a "rate check," calling banks to ask about exchange rates, which markets read as a warning shot before intervening. His call: "It's very likely the Japanese can intervene again if the yen crosses 160. In fact, you should probably count on it." But it will be "yet another violent short-term rally that doesn't change the fundamental situation."

The Philippines and Indonesia. The Philippine peso "recently fell to a record low below 62" even though the central bank has been raising rates. The trade deficit widened to "almost 6 billion US dollars," and the Asian Development Bank cut its 2026 growth forecast to 3.3%. Indonesia's current account deficit hit "a record in the second quarter as higher oil prices increased import costs."

China: the exception that proves the point. By the textbook, the yuan "should be plunging." Chinese interest rates are far below US rates, the property market is broken, and consumer spending "has ground to a halt." Yet "yuan continues to rise." Why? "Because China generates dollars commercially." Exporters are paid in dollars and sell them for yuan to pay wages and suppliers. "Energy importers must repeatedly enter the market to buy dollars. Chinese exporters repeatedly enter the market with dollars to sell."

His closing line is worth keeping: "The more governments feel they have to do, the more you know how big of a problem they really have."

Why it matters. If Snider is right, the dollar's strength depends less on the Fed and more on oil. Expensive oil keeps importers short of dollars. That also means a peace deal that brings oil down could weaken the dollar faster than any Fed decision.

Positioning: Goldman says hedge funds are modestly long the dollar

Last week State Street's Tim Graf said currency futures showed "a small dollar short." This week Goldman gave the other side of the picture.

On Goldman's The Markets podcast, Tony Kim, global head of hedge fund coverage, described how his clients are set up. Risk-taking is "relatively low right now." Where they do have positions, they're "set up for what we're talking about… paid rates positions in the bond market, bias towards flatter curves in the bond markets, on the margin long dollars."

In plain English: they're betting rates rise, betting short-term rates rise faster than long-term ones, and holding a small bet on a stronger dollar. (Kim sees hedge fund client flows directly, so this is an inside view of positioning, not an opinion. Note the recording date was Wednesday, Sep 23.)

The two readings fit together. The broad futures market is roughly flat on the dollar. Hedge funds are leaning slightly long. That means the dollar trade isn't crowded in either direction. A surprise wouldn't set off a big rush of forced buying or selling.

Kim's bigger point: "If you were to ask me what's the number one kind of clear and present danger for the stock market, I'd say it is the bond market." He also sized up the forces pushing yields up. Hyperscaler spending on AI was "like $150 billion" in 2023 and is "probably $1.3 trillion" next year. On top of that there is "a $2 trillion budget deficit at full employment." If you want to hedge stocks, he said, "contemplating shorts in the bond market is the right way to go."

The Fed: how high, and what's it waiting for?

Three practitioners gave three slightly different answers this weekend.

Bank of America: until stocks crack. On WSJ's Take On the Week (Sep 27), BofA rates strategist Megan Swiber, a former Fed staffer, explained what Fed Chair Kevin Warsh changed. He "characterized the hike as removing policy accommodation rather than restricting policy." He "threw out any framework for thinking about neutral rate." His focus "really is on the market," meaning financial conditions. And "you look at equities, you look at risk assets. There's very little signal to the Fed right now that anything is slowing down." So the Fed is "probably going to keep hiking until they get that signal back from the equity market."

She also explained why an October hike is hard to avoid. Warsh won't give forward guidance. So "if the market's pricing a hike in October and the Fed doesn't deliver a hike, then the Fed is easing financial conditions." That risks a repeat of July, when doubts about the Fed made long-term rates jump. Her trade view: "more room for the curve to flatten," meaning short-term rates rise more than long-term ones. That's the same position Kim says hedge funds hold.

One more point from Swiber explains why this rate shock feels different. Many Americans locked in cheap 30-year mortgages, so higher rates don't reach households directly. "The pass-through is really more broadly through financial conditions. And the biggest volatility component in financial conditions is what equities are doing." She also flagged competition for buyers: with the 30-year above 5.2%, investors can buy a highly rated corporate bond "that is 100 basis points over the 30-year treasury rate." AI-driven corporate borrowing is competing with the Treasury for the same money.

PIMCO: one or two more. Tiffany Wilding wrote on the PIMCO Pod (Sep 25) that the S&P 500 "sits roughly 13% above where it started the year." Seen that way, "September's Fed rate hike may have been aimed at helping prevent financial conditions from easing further." PIMCO's base case: "one or two more 25 BP rate hikes through this year and into early next." After that, as "tariffs, energy, and AI-related computing equipment price adjustments" fade, "further adjustments beyond that may not be necessary." She added a caution about the "neutral rate," the rate that neither speeds up nor slows the economy. Fed estimates run from "0.8% and 2.6%," and the error bands are about 1.7 percentage points either way. "That's a vast range in the world of interest rates."

The futures market: a lot more. On Forward Guidance (Sep 25), a veteran interest-rate futures trader known as DCP, who "started on the floor the summer of 1983," said the rate curve shows no cut "until December of 29." His balance point is much higher than PIMCO's: "the 30 year in the sixes," with the Fed's policy rate at 5% to 5.5%. He also said "PCE is going to come in hot the next two months." (PCE is the Fed's preferred inflation measure.) His checklist for when bonds can rally again: the Fed signaling it's done, AI spending slowing, diesel margins ("crack spreads") rolling over, a real drop in stocks, or a ceasefire. "Crack spreads rolling over. I think that's the real one."

On plumbing, DCP had reassurance: "I don't see any stress in the repo market or the swap market really per se." The Treasury's cash account "has got a decent balance right now."

The dissent: this is a policy mistake. On Thoughtful Money (Sep 26, recorded Thursday), RIA's Michael Leibowitz did the real-yield math. The 5-year yields about 5.1%, and inflation priced into inflation-protected bonds is about 2.3%. That leaves a real yield of about 2.7%, which he called "historically, you know, decently restrictive." He also flagged something he thought was overlooked. The Fed's own projections raised next year's expected policy rate by about half a point, "but they didn't change their economic forecast. They didn't change their inflation forecast." His question: "If you're telling me that higher rates have no impact on the economy, why are you changing rates?" His view is that more hikes now mean faster and bigger cuts later: "The more they increase, the quicker and the more powerful the rate cuts come."

Yields broke away from oil

For months, oil and yields moved together. Higher oil meant more inflation, which meant more Fed hikes and higher yields. That link broke last week.

Schiff: oil was "about $100 a barrel, and I think they finished around 92" on peace hopes. "But the interesting thing was yields on bonds kept rising… Now the bond market has broken out of that and bond yields are rising regardless of what happens to the price of oil." (Those oil figures appear to be US crude, which trades below the global Brent benchmark.)

CNBC's Santoli had described the oil-yield link on Friday morning as "a trading rule… a mechanical kind of self-reinforcing feedback loop." It made sense because "the world economy did not buckle at $100 oil." If yields now rise even when oil falls, the driver has moved from energy to something harder to fix: debt supply, AI borrowing and doubts about the Fed.

The consumer data points the same way. Schiff cited the final University of Michigan survey. Sentiment "dropped from 51.7 to 48.1," one-year inflation expectations "rose from 4% to 4.6%," and five-year expectations "edged up to 3.4%." And "consumers are now buying stuff because they're worried that if they wait, the prices will be even higher." That kind of thinking is what worries central banks.

The long view: gold, reserves and credibility

Two commentators took the long-term dollar case this weekend. It's the same fact read two ways.

Chris Whalen (Whalen Global Advisors), on The Julia La Roche Show (Sep 26), said the rise in long rates "is about the credibility of the United States and also the noise that's coming from the Trump administration… it has nothing to do with the Fed." Has Warsh lost control of long-term rates? "I think so. Unless the Fed is willing to come in and start directly purchasing securities in size." The Treasury's buybacks "are way too small to be significant."

On the dollar he split the time horizon. Short term: "over the past month or so, the dollars actually rallied. People have been running into dollars because interest rates are rising." Long term: "if you look at the top 20 central banks around the world, they're holding less dollar securities." He expects "a multilateral currency world," with the dollar still used for trade but not "as a store of value." He is "still very long gold and silver."

Nomi Prins (Prinsight Global), on Money Metals' Weekly Market Wrap (Sep 25), made the reserve case in numbers. Central banks "had their largest quarter on record in the second quarter of this year" for gold buying. The People's Bank of China is "sitting at all-time lows of treasury bonds." She called the Treasury buyback "very circular" because "it's buying back its own debt with its own debt." The show's hosts added that China "imported more than 1,100 tons of gold in the first eight months of this year, spending about $159 billion," per Chinese customs data. (Both venues sell or promote gold. The customs figures are the sturdiest part.)

One detail tells you the short-term and long-term stories are fighting. The same hosts noted that gold fell about 2.1% on the week to $4,297 an ounce, because "bond yields remained elevated and the dollar firmed." In the short run, higher rates win.

The technical view: a trader leans against the dollar

On In it to Win it (Sep 27), chart trader Steve Barton said the dollar index "is up 0.8% for the week." But he said Thursday's rally ran into a trend line he'd been watching and "bounced and rejected right down." His call: "My bias for the dollar next week is down." (This is chart reading from an individual investor, not fundamental research. It's the only explicit short-term dollar call of the weekend.)

Trump-Xi and the midterms

The Trump-Xi state visit ended Thursday night with warm words and little detail. CNBC's Megan Cassella on Squawk on the Street said "the tariff truce extension that we've been expecting was only two months, so a lot smaller or shorter than people had been expecting." That puts the next US-China deadline shortly after the election.

On the midterms, the defense analysts on ChinaTalk (Sep 25), recording "39 days away" from the vote, said the Iran war "is probably going to cost extra Senate seats." Their estimate is now "probably plus four for the Dems" in the Senate and "somewhere between plus 20 and plus 40 in the House." They expect this year's large budget to pass before the new Congress. After that, defense spending would "flatten, if not go down." They also warned that a proposed diesel export ban would look like a loss: the US refines about "20% of the world's diesel." (These are defense and politics analysts, not currency specialists. The fiscal reading is ours to draw. A split Congress has usually meant tighter budgets, which would ease one source of Treasury supply.)

The debate

Is the dollar strong for good reasons or bad ones?

  • Good reasons. US growth is strong, US real yields are high, and the Fed is hiking while others hesitate. Goldman's Kim points to Q3 growth of "3% or better," and hedge funds lean "on the margin long dollars." Snider agrees that for the euro, the rate gap is doing real work.
  • Bad reasons. Snider's main argument is that dollar strength against emerging markets comes from an oil-driven shortage of dollars. India, Japan and the Philippines are spending reserves to defend currencies that keep falling. That isn't confidence in America. It's stress in the system.
  • Where it lands. Both can be true at once. That matters for trading. If the dollar is up because of US strength, a Fed pause hurts it. If it's up because of a dollar shortage, an oil drop hurts it more.

Is the Fed nearly done or just getting started?

  • Nearly done. PIMCO sees one or two more hikes, then a pause as temporary price pressures fade. Leibowitz sees a policy mistake that brings cuts in mid-2027.
  • Just getting started. The futures market prices "more than three further hikes by a year from now," per CNBC's Santoli. DCP sees the Fed's rate at 5% to 5.5% and the 30-year "in the sixes." Swiber says the Fed hikes until stocks correct.

Has the Fed lost control of long rates?

  • Yes. Whalen: "I think so." Schiff says the September hike was "symbolic" and yields kept rising anyway.
  • Not yet. Swiber says a flatter curve is what a credible Fed looks like, with short rates rising more than long ones, as in 2022. Kim thought Warsh "reasserted kind of command of the narrative" after the September meeting, at least until last week's sell-off.

The trades in play

  • Short bonds as a hedge for stocks. Goldman's Tony Kim: "contemplating shorts in the bond market is the right way to go" (The Markets).
  • Curve flatteners. BofA's Swiber sees "more room for the curve to flatten" (WSJ's Take On the Week). Kim says hedge funds already have a "bias towards flatter curves."
  • Modestly long dollars. This is how Kim describes current hedge fund positioning. It's a lean, not a big bet.
  • Japanese domestic stocks. Kim's "one horse to ride": "Japanese equities with a bias towards the domestic… more of a Topix-like trade than a Nikkei-like trade." That trade does better if the yen stops falling.
  • Short dollar, on the charts. Barton's bias for the dollar this week "is down" (In it to Win it).
  • Long gold for the long run. Whalen is "still very long gold and silver." Prins sees gold settling "in a $4,300, $4,400 range" with central bank buying continuing "regardless of where Treasury yields are."
  • Be ready for yen intervention near 160. Snider: "you should probably count on it," though he expects the rally to fade.

Read-throughs

  • Oil importers are the pressure point. India, the Philippines and Indonesia show the dollar shortage is hitting countries that import energy. If Brent rises again, expect more intervention and more emergency measures.
  • Watch diesel margins, not only crude. DCP calls "crack spreads rolling over" the real signal for bonds. Whalen says refined products, not crude, are the bottleneck, and he warns fertilizer prices have "gone up eight times over the past 12 months."
  • Mortgages are resetting higher. Whalen: "take basically the 10-year treasury and add two points," which puts mortgages "well over 7%." CNBC cited a 30-year fixed rate of 7.45% late Thursday.
  • Stocks are narrower than they look. Santoli: the median S&P 500 stock is "17% off its high" while the index is within "a percent or two." Swiber's point is that the Fed watches the index. A narrow market can hide stress from the Fed for longer.
  • Corporate borrowers compete with the Treasury. Heavy investment-grade issuance tied to AI spending gives bond buyers an alternative to Treasuries, which adds pressure on long-term yields.

What changed this week

  • Yields set a new closing high. The 10-year closed Friday at 5.16% and the 30-year at 5.49%, both around 20-year highs.
  • Yields broke away from oil. Oil fell on Iran peace hopes, yet yields kept climbing.
  • The dollar story got a second reading. The DXY is above 101, but the strongest weekend argument says emerging-market dollar shortage, not US strength, is doing much of the work.
  • Yen intervention is back on the table. The Bank of Japan did a "rate check" as the yen approached 160.
  • Positioning is clearer. Goldman says hedge funds are modestly long the dollar, against a roughly flat futures market.
  • The US-China truce was shorter than expected. It's a two-month extension, which lands the next deadline just after the midterms.