Tariffs Struck Down But Uncertainty Remains: Why the Dollar Isn’t Celebrating

The Court found that the President did not have the legal authority to use IEEPA as a basis for those tariffs, and the measures were struck down.

On the surface, that should have been unambiguously positive for markets and the US dollar. Businesses had argued for months that the tariffs created uncertainty, raised costs, and distorted investment decisions. Removing them ought to have lifted a significant cloud. And yet, the FX market barely flinched.

Why hasn’t the dollar rallied?

The answer lies less in what the Court said, and more in what it didn’t. The ruling was narrow. It did not question the constitutionality of tariffs themselves, it simply said that IEEPA was not the correct legal vehicle. That distinction matters. The administration had clearly prepared for this outcome and quickly pivoted to alternative authorities — notably Section 122 of the Trade Act of 1974, which allows the President to impose tariffs of up to 15% for 150 days in response to “large and serious” balance-of-payments deficits — a term the President himself has significant discretion to define. In other words, the legal pathway changed, but the policy intent has not.

From a currency perspective, that continuity is key. Markets are forward-looking. If investors believe tariffs, or tariff-like measures, will persist in some form, then the structural uncertainty weighing on the dollar remains. There is also a political clock ticking, as Section 122 tariffs expire after 150 days unless extended by Congress. With midterm elections approaching, it is far from clear that Congress would be willing to prolong measures that are increasingly unpopular with consumers and corporates alike. That injects yet another layer of unpredictability into the outlook, and FX markets do not reward unpredictability.

The refund question — and trade deal fallout

The Court also sidestepped the thorny issue of refunds for tariffs already collected, potentially amounting to as much as $160bn. For affected companies, that question is critical. For markets, it is another unresolved liability lurking in the background.

Then there is the international dimension. Several trading partners negotiated bilateral arrangements with the US while the IEEPA tariffs were in place, securing lower rates, exemptions and carve-outs. If the administration now moves toward a blanket approach under alternative legal authorities, those agreements may need to be revisited.

We are already seeing signs of strain. The European Union has paused ratification of its trade agreement and is weighing potential retaliatory measures should previously negotiated terms not be honoured. Renewed trade tensions would hardly be a dollar-positive development.

The broader macro backdrop: a dollar under pressure

Even without the tariff saga, the dollar’s foundations look less secure. US growth disappointed sharply in the final quarter of 2025, expanding at just 1.4% annualised, with the prolonged government shutdown weighing heavily on activity and sentiment. At the same time, questions have emerged about the reliability of labour market data. Fed Governor Christopher Waller has publicly suggested that payroll figures may contain an upward bias, implying that the underlying jobs picture could be even weaker than headline numbers suggest.

That matters because it reopens the debate about monetary policy in 2026. A softer growth and labour backdrop increases the probability that the Federal Reserve could resume rate cuts. The expected appointment of former Governor Kevin Warsh as Chair in May adds another variable. While viewed as more credible than some previously floated candidates, he has historically shown a greater openness to both interest rate cuts and the reversal of quantitative easing. Any perceived shift in the balance of power at the Fed would have direct implications for rate differentials, and by extension, for the dollar.

Fiscal strains and the debt market

There is also the fiscal angle. Tariffs have functioned, in effect, as a revenue stream. If those revenues diminish or become more volatile due to legal challenges, the fiscal arithmetic becomes even more complicated.

The US Treasury market is already navigating elevated issuance, higher term premia, and investor sensitivity to political risk. Any additional strain risks pushing borrowing costs higher and eroding one of the dollar’s traditional pillars of support: deep, stable, and attractive capital markets.

So what does this mean for the US dollar?

In theory, the Court’s ruling removes a distortionary policy and should improve the business environment. In practice, it has simply shifted the battleground.

The core issue for FX markets is not whether tariffs are implemented via IEEPA or Section 122. It is whether the United States is moving toward a more predictable, rules-based trade framework — or further into ad hoc policymaking driven by executive discretion.

The dollar remains close to four-year lows because the ruling adds another layer to an already complex mosaic of uncertainty: trade policy in flux, growth losing momentum, questions around labour data, volatile inflation trends, the prospect of renewed Fed easing, and fiscal pressures simmering beneath the surface.

What markets crave most is clarity. Until there is firmer visibility on trade policy, the trajectory of US growth, and the future direction of the Federal Reserve, the path of least resistance for the dollar looks sideways at best, and vulnerable at worst.

For corporates and investors alike, this is a moment not for complacency, but for active currency risk management.