Unhedged Podcast: "How low can the dollar go?"

Financial Times & Pushkin Industries
Episode Date: February 19, 2026

Episode Overview

In this episode, host Katie Martin is joined by FT colleague Ian Smith to explore the recent weakness in the US dollar—even as the American economy remains resilient and stocks are performing reasonably well. The conversation unpacks why political turmoil, rather than economic data, is now the dominant factor driving the dollar down. The hosts also discuss how global investors are reacting, the impact of shifting central bank policies, and whether these trends suggest a long-term slide or the risk of a sudden drop. The episode ends with their "Long/Short" segment, featuring takes on wealth management and—humorously—curling.

Key Discussion Points & Insights

1. The Dollar’s Surprising Weakness

• (00:00–02:30)

• Despite a healthy US economy and positive jobs data, the dollar is struggling.
• Investor sentiment is notably negative, with asset managers indicating record levels of bearishness toward the dollar.
• "Asset managers hate it. Bearishness against the dollar reaching a record low on a recent survey conducted by Bank of America." — Ian Smith (01:43)

2. Why Isn’t the Dollar Stronger?

• (01:21–03:24)

• Traditional drivers like strong US growth and global economic weakness would typically support the dollar, but they aren’t working as expected.
• The dollar index fell about 9% in 2025 and hasn’t rebounded in 2026:
  "The big picture direction of travel for this thing is down." — Katie Martin (02:31)
• Even the euro and sterling have held firm against the dollar.

3. Three Major Factors Weakening the Dollar

• (03:24–05:01)

• Interest Rate Erosion: The US is cutting rates while others like Australia are raising or steadying theirs, reducing the “carry advantage” of dollar assets.
• Diversification Away from US Assets: International investors are moving money to European and emerging market equities and hedging away dollar exposure.
• Political Risk and Institutional Concerns: High US debt, deficits, and perceived interference with the Federal Reserve are spooking markets, creating a sense the dollar is caught between politics and policy.

Notable Quote:
"It's almost kind of what people are saying about the dollar, even more than what they're doing about it, that is really kind of downbeat at the moment." — Katie Martin (02:31)

4. Politics Trumps Economics

• (05:01–07:14)

• The normal correlation between a strong US economy and a strong dollar has broken down—investors now primarily cite political instability, especially pressure on the Fed, as the bigger danger.
• Asset managers like Amundi and Vanguard report clients increasingly want to hedge dollar exposure, even if it complicates aligning with global benchmarks.

Notable Quote:
"When Amundi says to prospective clients, well, why don't you stick to the existing benchmark but sell the dollar and hedge away the dollar risk, apparently that is a very open door to be pushing on." — Katie Martin (06:32)

5. Long-Term Policy and ‘Strong Dollar’ Doubts

• (07:14–10:09)

• The traditional US “strong dollar” policy is in question. Officials in the Trump administration (second term) have signaled comfort with a weaker dollar to boost US manufacturing and exports.
• Mixed messages abound: Trump welcomes dollar weakness, while Treasury Secretary Scott Basin reiterates support for a strong dollar, creating confusion for international investors.
• There was recent speculation that the US might even intervene to boost the yen, i.e., weaken the dollar further—a break with the long-standing policy.

Notable Quote:
"There is a question mark for investors as to we know that in many ways they would like a weaker dollar." — Ian Smith (09:58)

6. Fed Deliberations and the Rate Cut Dance

• (10:09–13:35)

• The latest Federal Reserve meeting minutes show policymakers see "two way risks," i.e., cuts are possible, but so are hikes if inflation picks up.
• Political pressure for cuts stands in contrast with concerns about persistent inflation; the dollar is being buffeted by these cross-currents.
• The administration’s criticism of Fed research (e.g., Kevin Hassett on NY Fed tariff studies) signals direct political involvement that unsettles investors.
• "Someone's got to be wrong somewhere." — Katie Martin (12:59)

7. What Happens Next?

• (13:35–16:13)

• Dollar weakness is expected to grind on rather than collapse suddenly.
• Most believe the slide will be gradual as diversification continues and hedging ramps up.
• If the Fed can’t cut rates due to inflation, some traditional dollar strength could return, but ongoing political attacks may offset this.

Notable Quote:
"There could be just a moment where the dollar does fall out of bed." — Katie Martin (15:56)
"I think a showdown of some degree is something... we love to see a showdown as journalists, but I do feel like those two things are colliding." — Ian Smith (16:02)

Notable Quotes & Memorable Moments

• "It's the politics, stupid." — Katie Martin (00:13)
• "Bearishness against the dollar reaching a record low on a recent survey conducted by Bank of America." — Ian Smith (01:43)
• "That is a very open door to be pushing on... clients saying, yes, please, please deal with the dollar risk." — Katie Martin (06:47)
• "I could see, yeah, that scenario where the response to that from the administration just increases the political risk in a way that's negative for U.S. government bonds and their currency." — Ian Smith (15:37)
• "If it all goes wrong we can sit back and low key laugh at the Americans." — Katie Martin (16:13)

[15:56–16:42] Speculation: Sudden Drop vs. Gradual Slide

• Risk remains of a “snap” downward move in the dollar if conditions align, though a steady grind seems more likely as repositioning continues.

[16:42–19:24] Long/Short Segment (Lighter Moments)

• Long Wealth Managers: Ian Smith thinks fears of AI/fintech disruption are overdone for high-net-worth clients who prefer in-person advice.
  • "I think a lot of this business is about going to visit people on their country pad, sitting down with them to talk estate planning." — Ian Smith (17:09)
• Short Curling and British Rain: Katie Martin humorously rails against the overabundance of curling in sports coverage and the relentless rainy weather in London.

Conclusion

Summary in a Nutshell: Political drama is weighing down the dollar in 2026 more than any economic developments, undermining the usual links between growth and currency strength. Asset managers are responding by diversifying and hedging. The pace of decline looks set to continue, though not collapse, unless inflation and political friction finally trigger a sharper drop. Meanwhile, the Unhedged team keep things lively with their trademark wit—even as they yearn for drier weather and less curling.

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