The US dollar fell sharply on Friday, impacted by a landmark ruling from the US Supreme Court. The court ruled that the reciprocal tariffs imposed by President Donald Trump on most countries at the start of his second term, under the authority of the International Emergency Economic Powers Act, were illegal.
Details of market movements and indices
Financial markets reacted immediately to the decision, with the main dollar index – which measures the greenback against a basket of six major global currencies – falling 0.10% to settle at 97.84. This move reflects a sense of relative relief in global markets, which had been cautiously monitoring the course of protectionist policies. The removal of tariffs often reduces anticipated inflationary pressures, which in turn lessens the likelihood of a sharp interest rate hike to support the currency.
The legal and political context of the decision
This ruling puts an end to the legal controversy surrounding the US presidency's use of the International Emergency Economic Powers Act as a tool to impose protectionist trade policies without full congressional approval. Experts point out that the Supreme Court's intervention reinforces the principle of separation of powers and limits the use of executive authority to unilaterally reshape the international trade landscape, a move that had been a source of concern for US trading partners.
Historical background of trade wars
This event cannot be separated from the historical context of President Trump's economic policies since his first term, characterized by the "America First" slogan. The preceding period witnessed widespread trade tensions, particularly with China and the European Union, leading to sharp fluctuations in currency and stock markets. Tariffs are a double-edged sword; while intended to protect domestic industry, they often result in higher production costs and increased prices for consumers, as well as triggering retaliatory trade wars.
Expected economic impacts
This decision is expected to have a positive impact on global trade. Eliminating these tariffs will ease the burden on international exporters, potentially revitalizing trade that has suffered under the restrictions. As for the dollar, its slight decline may bolster the competitiveness of US exports, but it also reflects a diminished appeal of the currency as a safe haven, a role it previously played in exploiting geopolitical and economic tensions stemming from trade wars.
