Dollar Steadies While US Treasurys Drop Amid Tariff Setback for Trump

The US dollar index (DX=F) briefly surged to over a one-week high before retreating, and US Treasury yields rose, following a ruling by the US Court of International Trade in Manhattan that invalidated the majority of President Donald Trump’s global tariffs. The White House announced plans to appeal the decision, injecting fresh uncertainty into trade tensions.

Highlights:

• Dollar index gained up to 0.4% before pulling back; currently steady at 99.95.

• US 10-year Treasury yields rose 5 basis points to 4.53%, 2-year yields climbed 6 basis points before easing.

• Court ruled Trump’s invocation of emergency powers for tariffs illegal, suspending key tariff programs on China, Canada, and Mexico.

• Tariffs on steel, aluminum, and autos remain unaffected by the ruling.

Market Reaction and Outlook

Market experts see the ruling as a temporary obstacle rather than a permanent shift in the US trade policy trajectory. According to Goldman Sachs analysts, other tax measures may compensate for the suspended tariffs, indicating that tariffs are still likely in the medium term. This ruling has briefly lifted some bearish pressure on the dollar, as renewed US growth prospects may prompt short covering.

Jordan Rochester from Mizuho International explained that while the ruling delays tariff implementation, the overall US trade agenda remains intact, supporting a potential dollar rebound.

Highlights:

• Tariffs likely delayed but not cancelled; other tax policies may fill the gap.

• Dollar’s sharp decline of over 7% since February partly due to trade war concerns.

• Temporary relief to markets wary of escalating global trade disruptions.

Currency and Yield Movements

In Asian markets, the yen and Swiss franc weakened against the dollar as improved risk sentiment reduced demand for traditional safe havens. However, these moves softened after European markets opened, while US Treasury yields continued to climb on expectations of sustained US growth and interest rates.

Highlights:

• Yen and Swiss franc led losses vs. dollar in Asia amid better risk appetite.

• Treasury yields climbed, reflecting market anticipation of firmer US growth and inflation.

• Treasury 10-year yield hit 4.53%, two-year yield hovered around 4.05%.

Trade and Legal Uncertainty Persists

The court’s decision adds complexity to the already volatile global trade environment. Investors now face uncertainty not only from tariffs and retaliations but also from ongoing domestic legal battles over trade policy. The ruling suspends Trump’s global flat tariff, China-specific elevated rates, and fentanyl-related tariffs, but tariffs under other legal authorities remain in place.

Virginie Maisonneuve, CIO of equities at Allianz Global Investors, warned that President Trump is expected to vigorously defend his trade agenda despite legal setbacks, while also pointing to a growing call for more rational trade policies.

Highlights:

• Legal challenges intensify uncertainty over US trade policy direction.

• Key tariffs suspended, but many remain, maintaining market tensions.

• Growing investor hope for more rational trade practices despite political resistance.

Investor Sentiment and Options Market

Options traders remain broadly bearish on the dollar over the next 12 months, though the conviction has eased somewhat. The one-month risk reversals indicate a persistent preference for downside protection against the dollar, supported by data from the Depository Trust & Clearing Corporation showing bearish positions exceeding bullish ones by roughly $13 billion in notionals.

Currencies such as the euro, Swiss franc, Norwegian krone, and New Zealand dollar exhibit the strongest momentum and investor conviction for gains against the greenback.

Highlights:

• Options market shows sustained bearish sentiment on the dollar.

• Bearish dollar bets outnumber bullish ones by around $13 billion.

• Euro, Swiss franc, Norwegian krone, and NZ dollar favored for gains vs. dollar.