USD eases after brief advance on tariff block - Scotiabank

Late yesterday, a US court blocked a large part of President Trump's tariff plans, striking down reciprocal and fentanyl-related tariffs. The USD responded positively to the headlines, jumping in early Asian trade--helped by a squeeze on short USD positioning--but it has since slipped back, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD gains and slips on court decision blocking significant parts of tariff policy

"The tariff risk premium on the USD may ease marginally in the short run but it is unclear whether there is much room for the USD to appreciate significantly. The court decision and the likely appeal which may run up to the Supreme Court simply extends the uncertainty surrounding tariffs and business decision-making, keeping a brake on global trade. The administration says it will appeal the decision and, even if that appeal is unsuccessful, other tariff avenues are likely to be pursued to help the president achieve his trade goals (and help raise revenue needed to help fund tax cuts)."

"Risk assets have responded mostly positively to the news, however, with US equity futures also lifted by last nights earnings. The USD is tracking mostly lower against its major currency peers alongside weaker US Treasurys, however, which suggests this latest tariff reprieve will not (yet anyway) allow the USD to reconnect with highs US yields/wider yield spreads. This reflects the underlying bearish tone of the USD based on investor concerns about US institutional credibility and weak fiscal policy settings as well as potential challenges to Fed independence."

"Overnight price action drove the DXY through resistance in the 100 zone but the slippage from the intraday high is pushing the index back to the upper 99s. Losses back under 99.75/80 would signal scope for a deeper USD drop on the day. The US data round this morning delivers the second read of Q1 GDP (expected unchanged at -0.3%), weekly claims, and Pending Home Sales. There are a number of Fed speakers with engagements over the course of the day. The Treasury is auctioning USD44bn of 7Y notes (results at 13ET). Banxico policy meeting minutes are out at 11ET. This evening, Japan reports Retail Sales, Industrial Production and Tokyo CPI data (May)."