The long-term bearish case for the dollar remained intact after a court ruled that the vast majority of President Donald Trump’s global trade tariffs are illegal, amplifying uncertainty over the US economic outlook.
A gauge of the greenback initially rose to a more than one-week high, though it struggled to maintain the gain and was trading flat by 11:35 a.m. London. The White House has already said it will appeal the decision, while strategists say there are plenty of alternative routes the president could pursue to ensure his flagship economic policy is not derailed.
Traders must now navigate yet another layer of complexity in the global trade dispute that has roiled markets this year, a series of tariffs and counter-levies as well as delays and reversals by Trump himself. All in all, it has undermined the longstanding elevated status enjoyed by US assets, fueling a so-called “Sell America” trade as foreign investors start to rebalance their portfolios.
“I can’t see anything other than over the year a further weakening of the dollar, because the dollar is significantly overvalued,” Jim O’Neill, former chairman of Goldman Sachs Asset Management, said in an interview on Bloomberg TV. While the currency might stabilize temporarily on the possibility of lower tariffs, he expects further outflows to other equity markets, dragging the dollar down.
The Bloomberg dollar index has tumbled more than 7% since a February high. It strengthened as much as 0.4% on Thursday, before erasing that advance following the US Court of International Trade in Manhattan’s ruling that Trump wrongfully invoked an emergency law to justify the levies.
Yields on 10-year US Treasuries rose five basis points to 4.53%, while two-year yields climbed as much as six basis points to around 4.05%.
The court decision suspends the vast majority of Trump’s tariffs: the global flat tariff, elevated rates on China and others, and fentanyl-related tariffs on China, Canada and Mexico are all covered by the ruling. But others imposed under different powers are unaffected, including those on steel, aluminum and automobiles.
Goldman Sachs Group Inc. analysts said the judgment represents only a temporary setback to Trump’s trade agenda and can be offset by other taxes. The president could also invoke other authorities to impose tariffs on individual sectors or countries, as he did in his first term.
“For markets, it’s a small deviation along the same path, same end goal. Tariffs are coming,” said Jordan Rochester, head of macro strategy for EMEA at Mizuho International Plc. “But on the margin, this pushes back on the consensus bearish dollar theme through a potential pick up in US growth expectations and so we may see some short covering.”
The yen and Swiss franc led losses against the dollar in Asian trading, as improved risk sentiment damped demand for traditional havens. The moves faded after the European open.
Virginie Maisonneuve, global chief investment officer equity, at Allianz Global Investors, said investors should prepare for Trump to resist efforts to disrupt his trade policy agenda. However, she welcomed the court’s pushback.
“I think we have to expect that he’s gonna try to do this,” Maisonneuve said on Bloomberg TV. “But what is really important here is this grassroot movement that we’ve been waiting for, for a while, in terms of putting a little bit more rationality around those practices.”
Options Sentiment
Options traders remain bearish on the dollar over the next year, though with slightly less conviction. So-called one-month risk reversals — which track the difference in demand between bullish and bearish dollar bets — continue to show a preference for downside protection.
Data from the Depository Trust & Clearing Corporation reinforce that view. Despite the dollar’s sharp rebound in the spot market this week, bearish options positions still outpace bullish ones by approximately $13 billion in notional terms.
The euro, the Swiss franc, the Norwegian krone and New Zealand’s dollar show the strongest conviction for renewed gains against the greenback, based on the latest flow patterns and positioning metrics.
“If Trump loses control of tariff policy, then I may need to moderate my view,” said Bilal Hafeez, chief executive officer and head of research at Macro Hive Ltd. For now though, he’s sticking with his “core bearish dollar view.”
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