USD: Dollar turns lower as investors prepare for court battle on tariffs

NEW YORK, May 29: The US Dollar (USD) fell on Thursday, reversing earlier gains, as investors prepared for a battle over US President Donald Trump’s tariff agenda after a US trade court on Wednesday blocked most of the proposed trade levies.

The Court of International Trade also ordered the Trump administration to issue new orders reflecting the permanent tariff injunction within 10 days. The Trump administration minutes later filed a notice of appeal and questioned the authority of the court.

“Markets were quick to realize that the ruling was sort of narrow, meaning it was only focused on one aspect of the tariff plan here – emergency authorization,” said Brad Bechtel, global head of FX at Jefferies in New York.

“There were still plenty of other avenues for Trump to kind of do his thing on the tariff side, and that’s why the dollar gave up some of its gains,” Bechtel said.

The dollar also weakened after data showed the economy shrank by 0.2% in the first quarter. The number of Americans filing new applications for unemployment benefits also increased more than expected last week.

The greenback has been dented on concerns that tariffs will slow the economy and reignite inflation, while the erratic implementation of the policies is seen as denting the appeal of the United States to foreign investors.

The Federal Reserve has kept interest rates on hold on concerns about higher inflation as Fed officials wait to see how they affect the U.S. economy.

Goldman Sachs forex analysts said the ruling should reduce some inflation expectations and “will likely restore a degree of confidence in institutional checks and balances.” It will also support risk markets, which should be positive for the U.S. currency, especially against safe havens such as the Japanese yen and Swiss franc.

TARIFF AGENDA

That said, “we think this is not likely to be the end of tariff policy, and in some respects, if the administration wins its appeal or opts for alternative legal paths to tariff implementation, they could aim for the tariff agenda as a whole to be more entrenched than it was previously,” the analysts said in a report on Thursday.

Pessimism over the U.S. economic outlook declined earlier this week after Trump on the weekend delayed a plan to impose 50% tariffs on European Union imports.

The euro was last up 0.5% against the dollar at $1.1349 after earlier falling to $1.1209, the lowest since May 19.

Against the Japanese yen , the dollar weakened 0.28% to 144.42. It earlier reached 146.28, the highest since May 15.

The dollar fell 0.42% to 0.824 Swiss franc .

Nvidia’s earnings late on Wednesday boosted risk appetite and the greenback earlier on Thursday. The company beat quarterly sales expectations as customers stockpiled its AI chips before fresh U.S. curbs on China exports took effect.

Nvidia has been key to U.S. stock market strength and continued investment in the U.S. boosts demand for the greenback.

Investors are also watching the progress of a tax cut and spending bill that is working its way through Congress, and which is expected to add trillions in U.S. debt over the coming decade. Some Republicans have criticized it for not having enough spending cuts.

Trump’s budget chief said on Wednesday that the White House intends to send Congress a package next week to formalize cuts made by billionaire Elon Musk’s team targeting federal government spending.

Longer-dated U.S. Treasury yields rose last week and the U.S. government saw soft demand for an auction of 20-year bonds, on rising concerns about the deteriorating U.S. fiscal outlook.

The Japanese yen also weakened against the greenback earlier this week on reports that Japan will consider trimming issuance of super-long bonds in the wake of recent sharp yield increases in the country.