The U.S. dollar rallied on Thursday in knee-jerk reaction to a court blocking President Donald Trump from imposing his import tariffs on other countries, providing some relief for the currency that has struggled this year due to trade uncertainty.
The Manhattan-based Court of International Trade said the U.S. Constitution gives Congress exclusive authority to regulate commerce with other countries that is not overridden by the president's emergency powers to safeguard the U.S. economy.
In response, the Trump administration filed an appeal within minutes.
"It's almost impossible to know if the tariffs will be completely unwound by this. But in the hypothetical situation that they are, it's natural to see dollar appreciation," said Yunosuke Ikeda, head of macro research at Nomura in Tokyo.
"Trump's tariffs will lead to stagflation pressure on the U.S. economy, so reversing those tariffs would be a positive for the dollar."
U.S. assets including the dollar, equities and longer-dated Treasury bonds have witnessed sharp declines in recent months as investors reassessed historic assumptions around the strength and outperformance of U.S. markets as Trump's erratic trade and tax policies sap confidence and spur inflation.
On Thursday, the dollar reversed some of those moves and rose 0.72% against the yen to 145.86 and 0.63% against the Swiss franc to 0.8326.
The euro slid 0.42% to $1.1245 and sterling fell 0.30% to $1.3432. That left the dollar index , which measures the U.S. currency against six major peers, back above 100 for the first time in a week.
The index, though, is down 8% this year and analysts remain sceptical of a sustained dollar rally and expect a long court battle over tariffs.
"There's an initial reaction of a stronger dollar and weaker yen. However, considering judicial processes like appeals, I don't expect a continuous rise in the dollar," said Hirofumi Suzuki, chief FX strategist at SMBC.
The greenback has weakened about 2% against the Japanese yen, nearly 6% against the Swiss franc and 4% against the euro since Trump slapped harsh levies on global economies on April 2, while the broader dollar index has fallen more than 3%.
"The markets are buying back the dollar on the news, rather than selling the yen," said Tohru Sasaki, chief strategist at Fukuoka Financial Group.
"But if the dollar continued to rise to above 148 yen, speculative short yen positions may be forced to unwind, causing the dollar-yen pair to rise even more," he said.
U.S. stock futures and Asian bourses jumped on a risk-on rally. Traders also cut their expectations for interest rate cuts by the Federal Reserve to 42 basis points of easing compared to 50 basis points earlier in the week, LSEG data showed.
Investor focus this month has been on the bond market, with lacklustre demand for longer-dated debt globally drawing attention to worsening government deficits.
Traders are also watching progress of a budget and spending bill in the U.S. Congress that is expected to add trillions of dollars of debt.
But sentiment about the U.S. economy has improved after Trump delayed on the weekend a plan to impose 50% tariffs on European Union imports and investors are on the lookout for any signs of improving relations between the United States and its trade partners.
