Official White House Photo by Joyce N. Boghosian.
The dollar could be in for a shock if Trump's tariffs are ruled illegal.
? The next big thing for the dollar:
Today marks the start of the U.S. Supreme Court hearings regarding the legality of some of the US administration’s tariffs. A ruling is expected before the end of the year.
Why it's happening:
In May, the Court of International Trade said U.S. President Donald Trump overstepped his authority by imposing tariffs under the International Emergency Economic Powers Act (IEEPA).
The argument is that an IEEPA-based tariff is a sanction-style import tax implemented by a president under emergency national-security powers, not a standard economic measure under normal trade law.
The Supreme Court’s ruling will ultimately decide the case.
What are the odds that the ruling doesn't go Trump's way?
Predictit gives a 73% probability that Donald Trump will lose. Polymarket estimates the chances of such an outcome at 64%.
⚡How will the dollar react?
One theory suggests it would be a USD-negative outcome were Trump to lose the case.
Alex Kuptsikevich, chief market analyst at FxPro, says the cancellation of import duties will be a blow to the U.S. economy and the dollar.
Above: In the year tariffs were hiked, the dollar struggled. Image thanks to Corpay.
"Refunds and an increase in the budget deficit will require a reduction in government spending and an increase in taxes. This will slow GDP growth and force the Fed to aggressively cut rates," he explains.
The big number: Since the introduction of the new tariffs, revenue from customs has improved significantly and is estimated to have brought an additional $110bn in government revenues this year.
? "The unravelling of a large proportion of Trump’s tariffs could exacerbate concerns about the state of America’s public finances. Investors in the bond market have already been questioning the trajectory of the country’s mounting debt. In order to avoid increasing public debt further, the President might have to reduce his “Big Beautiful Bill” tax deductions or find other ways to offset the budget deficit," says Carsten Brzeski, Global Head of Macro at ING Bank.
Could Trump's loss boost the dollar?
However, as always, the FX implications are not so clear-cut: the dollar tumbled in the first quarter of the year when Trump rolled out his tariff policy.
? The theory went that higher tariffs would bolster imported inflation, weighing on the economy.
It created the "sell America" theme. Surely, the unravelling of tariffs undoes that damage?
Yet, the impact of a ruling against Trump could be short-lived:
"Most observers think this will ultimately prove a relatively minor stumbling block in the president’s push to increase tariffs on a wider scale," says Karl Schamotta, Chief Market Strategist at Corpay.
"The loss of IEEPA-based tariffs might not be a permanent setback for Trump’s push to reshape global trade, as sectoral tariffs would remain basically unaffected. It is therefore likely that if the Court were to rule against the tariffs, the US government would impose more and new sectoral tariffs, probably on pharmaceuticals, chemicals and automotives," says ING's Brzeski.