The incredible shrinking dollar

Katie Martin (0:09)

The US stock market is off to a great start to 2026, and US government bonds are also pretty well behaved. So, all is well in the world. Peace and harmony reign. Everything is awesome in global markets. Well, you know, kinda. The problem here for pretty much everyone is the dollar. It's taken a decent hit in the opening weeks of this year, and that munches into the returns that investors around the world can get out of US assets. Plus, there's some weird stuff going on with the Japanese yen. If you're confused, I don't blame you, but fear not. But today on the show, we're going to unpack what's going on and why it matters. This is Unhedged, a markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a market's columnist at FT Towers in London, which has a tiny, tiny hint of spring in the air. And I'm joined through the magic of the internet by the big man, Robert Armstrong, of the Unhedged newsletter in New York City.

Robert Armstrong (1:09)

There's not a tiny, tiny hint of spring in the air in New York City. There is a tiny, tiny hint of I'm about to freeze to death in New York City.

Katie Martin (1:20)

So you're still in your snow boots.

Robert Armstrong (1:21)

I am indeed, and my long undies.

Katie Martin (1:25)

Please, it's a family show.

Before we get going, we discussed briefly the Melania movie the other day. We did. And it sounds, I've got to say, epic. One review that I saw the other day said, even if they showed it on a plane, people would still walk out.

Robert Armstrong (1:45)

This is shooting fish in a barrel.

Katie Martin (1:49)

Okay, serious stuff. The dollar, it's not just any old currency, right? So it's ups and downs affect the whole world, like partly because commodities are often priced in dollars. So your cost of oil, for example, as a country depends a lot on whether the dollar is going up or down, in addition to whether oil is going up or down. And you can be very, very, very clever as an investor and you can be right about US stocks, biggest, most important stock market in the world. But if you get the dollar wrong, then you get ironed out. So S&P 500, the big benchmark US stocks index just hit 7,000 the other day. It's up about 2% just in January so far. But if you're based in euros, it's up more or less 0%. And if you're based in sterling, it's down half a percent because of the dollar. So I guess the moral of the story is even if you think you don't need to think about currencies, I'm afraid you do.

So what's going on here, Mr. Armstrong?

Robert Armstrong (2:53)

There is a trust issue between the United States and the rest of the world, I think is the basic problem.

Katie Martin (3:00)

I cannot imagine why that's the case.

Robert Armstrong (3:02)

We had kind of a wild week. I mean, the chart of the dollar is a thing to behold. And of course, it's a joke to talk about charts on the radio. But like, basically, the decline in the dollar we've seen in the last week, the only thing that compares to it in the last couple of years is the Liberation Day freak out back in April. Right. So it looks like we had a similar kind of collapse in trust in the United States. And I think that's easy to understand in the following sense.

Just on the heels of sort of threatening to invade a NATO country, we had Trump talking about how he doesn't care about the dollar, and indeed, he's fine with a weak dollar. We had the United States government signal that it might intervene in the dollar-yen market, and then we had the Treasury Secretary of the United States say that actually we had a strong dollar policy. So you can sympathize with people around the world who own a lot of US assets from thinking things were a little jumpy over here, and we better buy some protection against dollar volatility.

Katie Martin (4:25)

You can add to that little list of like Greenland and all the rest of it, obviously the long running hellscape that is who's going to be the next chair of the Federal Reserve, you know, is the new central bank chief going to do exactly what Donald Trump wants? None of that helps. But so it's useful, I think, to do a few little scores on the doors here. So as you say, there was a big hit to the dollar last year around Liberation Day, but that kind of petered out in the second half of the year. But what we've seen so far in 2026, so the dollar index is down by a little over 2%. So that measures the dollar against a whole bunch of other major currencies.