The market aborted its attempt to lift the DXY Index above the significant 100 level on Thursday. The US Court of International Trade ruled on May 28 that US President Donald Trump had exceeded his authority in invoking the International Emergency Economic Act (IEEPA) to impose his sweeping “Liberty Day” reciprocal tariffs. The Trump administration’s filing to the US Court of Appeals for the Federal Circuit succeeded in putting an immediate albeit temporary hold on the trade court’s ruling to halt most of Trump’s global tariffs within ten days.
The legal proceedings ahead have two milestones. The plaintiffs must submit their responses to the government’s appeal by June 5. Next, the Trump administration must file its reply brief by June 9. The Federal Circuit will then decide whether to uphold or overturn the trade court’s ruling. Given the questions raised about the overreach of the executive authority, the Trump administration warned about elevating the case to the Supreme Court, which has a 6-3 majority of Republican appointees. However, political observers were sceptical about the Supreme Court’s readiness to ditch the constitutional process. If so, the administration could turn to other trade practice provisions such as Section 232 (to target sectors and commodities) and Section 301 (to justify retaliation to currency undervaluation or intellectual property theft). The latter could see a greater push to include currency discussions in trade negotiations.
However, we noted that acute USD-selling resumed overnight after weaker-than-expected US data drove US equities and bond yields lower. Although 1Q25 US GDP growth was revised to -0.2% QoQ saar vs. -0.3% advance estimate, personal consumption growth was revised lower to 1.2% from 1.8%. Initial jobless claims also jumped to 240k for the May 24 week vs. 226k a week earlier, keeping markets alert to downside risks in US jobs data next week. Consensus expects nonfarm payrolls on June 6 to slow a second month to 130k in May from 177k in April. On today’s US PCE inflation data, the Fed will be vigilant about how Trump’s tariffs will lift prices.
Meanwhile, Fed Chair Jerome Powell resisted pressure to lower interest rates during his first in-person meeting with Trump since the president’s inauguration. Powell and Fed officials have been hammering the message that they would not decide on rates until they get more clarity on Trump’s trade and fiscal policies, hopefully by August when the 90-day tariff pause on China ends amid the administration’s plan to push through Trump’s “One Big Beautiful Bill” by Independence Day. However, the trade court’s ruling on tariffs has increased uncertainties over the administration’s leverage to expedite trade negotiations, especially with the EU and China. In any verdict that undermines tariffs as a new revenue source to buttress government revenues, fiscal hawks will push harder for deeper spending cuts in exchange for the Senate passing the OBBB.
In the coming fortnight, the USD faces downside risks from ambiguity in Trump’s effectiveness in delivering his trade and fiscal agendas amid disappointing US data.
Quote of the Day
“A house divided against itself cannot stand.”
Abraham Lincoln
May 30 in history
The Lincoln Memorial was dedicated in Washington, D.C. in 1922.
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