Podcast Summary: Unhedged – "The Incredible Shrinking Dollar"

Date: January 29, 2026
Hosts: Katie Martin (London, FT Markets Columnist), Robert Armstrong (New York, Unhedged Newsletter)

Main Theme

The hosts discuss the recent sharp decline in the US dollar, why it matters globally, and the web of financial and political factors fueling the volatility. They examine implications for investors, unusual currency market interventions (particularly around the yen), and the uncertainty surrounding the next US Federal Reserve chair. The episode highlights the interconnectedness of US macro-policy, global trust, and the dollar's historically dominant role.

Key Discussion Points and Insights

1. The Dollar’s Slump – Why It Matters

• Opening context: US stock market and government bonds are doing well on paper, but the dollar’s downturn is undermining non-US investors’ returns.
  • “You can be very, very, very clever as an investor … But if you get the dollar wrong, then you get ironed out.” (Katie, [01:49])
• Example: S&P 500 is up ~2% in January in dollar terms, but for euro and sterling investors, the return is minimal or negative.
• The dollar is critical globally because commodities (like oil) and most international assets are priced in dollars.

2. What’s Behind the Dollar’s Weakness?

• Loss of trust in US macro-policy, political instability, and mixed signals from US authorities:
  • Trump publicly advocating a weak dollar, signaling intervention in dollar-yen, but Treasury insists on "strong dollar" policy.
  • Ongoing uncertainty over the next Federal Reserve chair amplifies nerves globally.
  • Series of “termites” (small factors eroding dollar dominance), as put in a cited FT Alphaville note, are identified: trust issues, bad macro-policy, growing deficits, weakening institutions and rule of law ([07:39]-[09:58]).

Notable Quote

• “There is a trust issue between the United States and the rest of the world, I think is the basic problem that’s the case.” (Robert, [02:54])

3. Impact on Global Markets and Currencies

• Sterling is up 2.5%, euro up 2.5%, Swiss franc surges 4% against the dollar – its strongest since 2011 ([05:02]).
• Strength of the Swiss franc (“safe haven”) is destabilizing for Switzerland, raising specter of deflation and forcing possible negative rates or interventions, boxing in their central bank ([05:34]-[06:13]).
• There is a risk of a self-fulfilling cycle – dollar weakness drives hedging, which pushes it down further ([07:18]-[07:39]).

Notable Quote

• “What we have here are termites. Slowly feasting away at the foundations of the dollar’s dominance.” (Katie, quoting FT Alphaville, [07:39])

4. Clarifying the Investors’ Stance

• Global investors are NOT fleeing US assets (treasuries and stocks remain in demand); they’re simply hedging currency risk, not abandoning the dollar ([07:57]-[08:26]).
• However, diversifying into more non-dollar assets becomes the default over time.
• “It’s one thing to say … there are kind of alternatives here and there … That doesn’t change the hard fact that America is the indispensable economy.” (Robert, [09:58])

5. Political and Policy Uncertainty (the “Fed chair question”)

• The prolonged search for a new Fed chair as Jerome Powell steps down feeds global anxiety.
  • Trump seeks a candidate both credible and willing to “bend the knee” ([11:46]-[12:37]).
  • Bullying tactics, including legal action/scrutiny of the Fed, are undermining confidence.
• Top contenders: Rick Rieder (BlackRock, dovish), Kevin Warsh (experienced), Kevin Hassett (closer to Trump), and Treasury Secretary Scott Besant (a wild card) ([14:13]-[15:56]).
  • Bets and speculation abound, with both hosts seeing market clarity as urgently needed.

Notable Exchange

• “This is bullying on a major scale and the world don’t like it.” (Robert, [12:50])
• “I think it would help, possibly help the dollar actually, if we get a little bit of clarity around this.” (Katie, [16:15])

6. The Outlier: Dollar Strength Against the Yen and US Involvement

• The dollar isn’t weak everywhere: it’s exceptionally strong versus the Japanese yen ([16:49]).
• The Bank of Japan’s typical playbook (statements → rate checks → intervention) is described. But this time, the rate check was done by the New York Fed (on behalf of the US Treasury), not Japan ([18:12]-[18:44]).
  • This US intervention is extremely rare and signals high concern.
• Theories for US involvement:
  1. Trump administration wants to prevent a Japanese currency crisis that could spill into the US ([19:36]-[20:17]).
  2. Subtle pressure on Japan on investment commitments ([20:18]-[21:00]).
  3. Pressure to address weak Asian currencies more broadly, as Trump dislikes the competitive effects ([21:03]-[21:15]).
• Ambiguity remains: Is it just about yen, or the start of coordinated efforts on Asian currencies?

Notable Quote

• “This is a very big deal … The US does this about once every 15 years. Does a check in some rate market. So this is extremely rare event.” (Robert, [19:14])

7. End of Show: Predictions and Personal Takes

• Rob puts his money on Scott Besant becoming the next Fed chair ([22:29]).
• Katie’s “short” pick: skepticism and gender double standards around Musk’s rumored plan to time the SpaceX IPO to a planetary alignment ([22:53]).

Timestamps for Important Segments

• [01:49] – Why dollar moves matter globally for investors and economies
• [02:54] – Trust issues driving the dollar’s weakness; recap of US policy confusion
• [05:02] – Impact on other currencies: pound, euro, Swiss franc; consequences for Switzerland
• [07:39] – “Termites” analogy for the slow decline in dollar dominance
• [09:58] – Division between dollar-based assets and dollar as a currency
• [11:21] – The adage: “The dollar is our currency, but it’s your problem.”
• [12:37] – Fed chair uncertainty: Trump seeks a compliant successor to Jay Powell
• [14:13] – Rundown of potential Fed chair candidates
• [16:49] – Dollar’s strength in Asia, especially vs. the yen
• [18:12] – New York Fed’s rate check on the yen – US intervention explained
• [19:14] – Rarity and significance of US Treasury’s involvement
• [19:36] – Theories about US motives for intervening on the yen
• [21:03] – Third theory: broader concern over weak Asian currencies
• [22:29] – Predictions for next Fed chair; SpaceX/Birthday/planetary IPO rumors

Notable Quotes

• "You can be very, very, very clever as an investor ... But if you get the dollar wrong, then you get ironed out." — Katie Martin [01:49]
• “There is a trust issue between the United States and the rest of the world, I think is the basic problem that’s the case.” — Robert Armstrong [02:54]
• “What we have here are termites. Slowly feasting away at the foundations of the dollar’s dominance.” — Katie Martin, quoting FT Alphaville [07:39]
• “This is bullying on a major scale and the world don’t like it.” — Robert Armstrong [12:50]
• “The dollar is our currency, but it’s your problem.” — Katie Martin, quoting John Connally [11:46]
• “This is a very big deal ... The US does this about once every 15 years.” — Robert Armstrong [19:14]

Tone and Style

The conversation is witty, candid, and accessible (“nerdy currency market stuff that nourishes me,” Katie). Both hosts pepper in banter and sharp commentary, striking a balance between technical explanation and “markets gossip.”

Summary for New Listeners

Even for those not immersed in finance, this episode offers a lucid explanation of why the dollar’s movements have outsized effects worldwide, how investor trust and political signals shape currency markets, and why this year’s Fed succession drama is so consequential. The show also shines a light on the rare intervention by US authorities in the Japanese yen market and flags the global implications of even “small” US policy shifts.

Listeners are left with big questions: Is this the beginning of the end for the dollar’s supremacy, or a blip? What kind of Fed will the world get next, and what does US muscle-flexing in currency markets mean going forward?