During Asian and European trading hours on Monday, the U.S. dollar index continued its decline from the previous Friday, showing a pattern of dipping to a low before making a slight recovery. It is currently trading at 97.52, down 2.8%.
Financial markets experienced heightened volatility at the start of the week, with investors adjusting their positions based on the latest developments in U.S. trade policy and geopolitical events. In the absence of major economic data releases, market focus on Monday centered primarily on these two key issues, making the dollar index one of the most directly affected assets.
A landmark ruling by the U.S. Supreme Court on Friday dealt a significant blow to the legal foundation of the Trump administration's global tariffs. The court ruled 6-3 that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) lacked proper legal authorization. This decision not only weakens the legal standing of the tariff policy but also closes a major pathway the president had used to impose tariffs by declaring a national emergency, thereby bypassing Congress.
This ruling places over $100 billion in tariffs previously collected under IEEPA at risk of being invalidated, potentially leading to refunds. It also sets a clear boundary on the extent of presidential emergency powers.
Following the Supreme Court's decision, U.S. Customs and Border Protection (CBP) announced that, effective February 24th Eastern Time, goods entering the consumer market or withdrawn from warehouses for consumption will no longer be subject to these tariffs.
On the same day, February 20th, former President Trump announced, in response to the ruling, that he would impose a 10% import tariff on global goods for 150 days under Section 122 of the U.S. Trade Act of 1974, effectively replacing the tariffs deemed illegal by the Court.
Subsequently, on February 21st, Trump stated on social media that the "global import tariff" rate announced the previous day would be increased from 10% to 15%.
Trump's swift and forceful retaliation, announcing the new tariff within hours of the ruling and raising the rate just a day later, signals a sharp policy pivot. His administration is now turning to alternative legal frameworks, such as Section 301 of the Trade Act of 1974, to escalate protectionist measures. This abrupt policy shift is directly impacting the stability of global foreign exchange and capital markets.
The deeper implications of the Supreme Court ruling suggest its direct economic impact may be limited. In the short term, it could moderately ease inflationary pressures, potentially giving the Federal Reserve more flexibility in its policy adjustments and providing a temporary boost to risk assets. However, the process of handling potential tariff refunds could lead to administrative complications. Furthermore, the tool of tariffs has not been eliminated from the policy arsenal, indicating that ongoing political and economic battles are likely to continue.
Analysts note that, ahead of a potential meeting between the leaders of the United States and China, this ruling strengthens China's negotiating position. However, Trump could still resort to non-tariff barriers, such as technology export controls, which would heighten risks associated with global supply chain restructuring. This supports safe-haven sentiment in foreign exchange markets but does not necessarily benefit the U.S. dollar.
The European Commission issued a firm response on Sunday, explicitly rejecting any form of tariff increase. It emphasized that "an agreement is an agreement" and hinted at potential countermeasures. In contrast, the U.S. Trade Representative, Katherine Tai, struck a more conciliatory tone, stating that existing trade agreements would not be modified in an attempt to calm market expectations.
India has postponed a trade delegation visit to Washington, reflecting a significant rise in trade policy uncertainty for emerging markets. Some commentators describe the current situation as "one step forward, two steps back," suggesting that while the Supreme Court's ruling initially loosened trade tensions, the government's retaliatory actions have quickly escalated friction risks once more.
The Governor of California, Gavin Newsom, characterized former President Trump's tariff policies as a "farce." He stated that following the Supreme Court's ruling against the legality of the massive tariff program, the Trump administration should refund the tariffs already collected from Americans.
Newsom pointed to economic data from the last quarter, including a GDP growth rate of only 1.4%, inflation rebounding to 3%, and the worst employment figures since 2013, arguing that Trump and his economic advisors are "jointly destroying the U.S. economy."
Adding to the dollar's volatility are geopolitical developments. According to the Omani Foreign Minister, the U.S. and Iran are scheduled to hold a new round of nuclear talks in Geneva on Thursday. The previous round of talks failed to yield an agreement due to core disagreements over sanctions relief.
Furthermore, a report in The New York Times suggests Trump is considering targeted military strikes against Iran in the short term, with the possibility of larger-scale military action within the year should negotiations fail. This combination of geopolitical risks and tariff instability creates a dual source of market disturbance.
Recent U.S. GDP growth fell significantly short of expectations. Compounding this, the Supreme Court's ruling against the legality of Trump's tariffs further darkens the outlook for the U.S. government's debt servicing capacity, echoing recent market concerns about a potential U.S. debt crisis.
Although Trump subsequently imposed new tariffs, their 150-day time limit provides some constraint. However, markets anticipate that Trump will not concede easily and note that numerous other policy options for imposing tariffs remain available. Following its initial drop, the dollar index has begun to rebound.
Additionally, global markets this week are focused on Nvidia's earnings report scheduled for Wednesday. With the AI sector currently experiencing valuation adjustments and capital reallocation, the company's financial results and management's commentary could influence technology sector valuations and the distribution of U.S. dollar liquidity, indirectly affecting the trajectory of the dollar index.
From a technical analysis perspective, the dollar index has attempted twice this month to breach the key resistance level at 97.86 but has ultimately failed to sustain above it. Current resistance is identified at this price level, as well as at the upper boundary of the recent trading range around 97.61.
As of 17:23 Beijing Time, the dollar index was reported at 97.58.
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