The greenback is bleeding.
Wall Street calls it a rebalancing. We call it a controlled descent into chaos. As of February 13, 2026, the US Dollar Index (DXY) has slipped another 0.4 percent in overnight trading. This follows a week of relentless selling pressure. The narrative of American exceptionalism is hitting a mathematical wall. Rob Kaplan, Vice Chairman at Goldman Sachs, recently signaled this shift during the Global Macro Conference APAC. He questioned the true value of a weaker dollar. The consensus is that a cheap currency boosts exports. Kaplan disagrees. He views it as a short term sedative for a long term structural illness.
Export gains are a mirage. When the dollar drops, the cost of imported raw materials spikes. Global supply chains are priced in USD. A weaker currency does not just make your goods cheaper for others. It makes your production more expensive for yourself. This is the feedback loop the Federal Reserve is currently ignoring. Per recent Bloomberg currency data, the dollar has lost 6 percent of its value against a basket of peers since the start of the year. The market is pricing in a reality that the Fed refuses to acknowledge in its official minutes.
The Japanese Carry Trade Unravels
Volatility is back. It never really left. It just moved to Tokyo. The Bank of Japan (BoJ) has finally abandoned its defensive posture. This has sent shockwaves through the global treasury market. For decades, the yen was the world’s cheapest source of capital. Investors borrowed yen at zero percent to buy US Treasuries. That trade is dying. On February 11, the BoJ indicated a further tightening of its monetary belt. The result was a violent spike in Japanese Government Bond (JGB) yields. This forced a massive liquidation of US assets to cover margin calls in Tokyo.
Liquidity is the ghost in the machine. When Japanese rates move, the world feels the vibration. Kaplan’s address highlighted this volatility as a primary risk factor for US monetary policy. The Fed cannot hike rates in a vacuum. If the BoJ tightens too fast, the resulting capital flight from the US back to Japan could cause a localized credit crunch. We are seeing the first signs of this in the corporate bond market today. Spreads are widening. Risk is being repriced in real time.
The Technical Mechanism of Currency Debasement
Currency value is a relative game. It is a race to the bottom. The US is currently winning that race. The mechanism is simple. Massive fiscal deficits require lower real rates to remain serviceable. If the Fed allows rates to stay high while the dollar remains strong, the interest expense on the national debt becomes the largest line item in the budget. To avoid this, the currency must be sacrificed. This is not a policy choice. It is a mathematical necessity.
According to Reuters market reports from the last 48 hours, the yen has strengthened to 138 against the dollar. This is a level not seen in months. The carry trade unwind is accelerating. When the yen strengthens, the dollar must fall to maintain the global balance of payments. This creates a vacuum in the US Treasury market. The largest foreign holder of US debt is no longer buying. They are selling.
G7 Currency Performance Comparison YTD
The following table illustrates the performance of major currencies against the USD as of February 13, 2026. The data reflects the aggressive shift in global capital flows away from the greenback.
| Currency Pair | YTD Change (%) | Current Spot Rate | Volatility Index (VIX-FX) |
|---|---|---|---|
| USD/JPY | -8.2% | 138.42 | 14.2 |
| EUR/USD | +4.5% | 1.1240 | 9.8 |
| GBP/USD | +3.1% | 1.3105 | 11.5 |
| AUD/USD | +5.2% | 0.7012 | 13.1 |
| USD/CHF | -3.9% | 0.8650 | 8.4 |
USD/JPY Volatility Trend (Feb 1 – Feb 13)
The Illusion of Growth
A weaker dollar is often touted as a boon for the S&P 500. It is a lie. While multi-national earnings look better when translated from euros or yen back into dollars, the underlying purchasing power of those earnings is eroded. We are seeing a nominal rally masking a real-term stagnation. This is the core of Kaplan’s warning. If the US continues to rely on currency debasement to drive growth, the end result is a loss of reserve status. The Yahoo Finance currency dashboard shows that emerging market currencies are also gaining ground, suggesting a broader diversification away from the dollar.
Institutional investors are moving into hard assets. Gold and silver are seeing record inflows this week. This is a classic flight to safety. But it is not a flight to the dollar. It is a flight from it. The Japanese rate volatility is merely the catalyst. The underlying cause is a decade of fiscal profligacy and monetary overreach. The market is finally calling the bluff.
The next data point to watch is the February 27 release of the Personal Consumption Expenditures (PCE) price index. If inflation remains sticky while the dollar weakens, the Fed will be forced into a corner. They will have to choose between saving the currency or saving the bond market. They cannot do both. Watch the 10-year Treasury yield. If it crosses the 4.5 percent threshold while the DXY is under 100, the dollar trap will have officially snapped shut.
