Tariff Ruling Hits Dollar; Euro Climbs, Yen Drops!

Tariff Ruling Hits Dollar; Euro Climbs, Yen Drops!

Over the past 24 hours currency markets digested two clear forces: a U.S. legal decision that reduces the executive branch’s unilateral tariff power and domestic data highlighting the uneasy mix of slowing growth and persistent inflation. Together those developments knocked the dollar lower versus major peers, while separate inflation data out of Japan pushed the yen weaker. The combined effect has traders reassessing rate expectations and positioning across EUR/USD, USD/JPY and other liquid pairs.

Tariff ruling and U.S. data: why the dollar slipped

What changed

The U.S. Supreme Court narrowed the President’s ability to impose tariffs under the International Emergency Economic Powers Act (IEEPA) without Congressional approval. By removing a notable, unilateral tool for quickly imposing import levies, the ruling reduces a potential source of near-term import-driven inflation. At the same time, U.S. growth indicators — with Q4 GDP running well below prior forecasts and core inflation measures remaining above target — have created a policy dilemma for the Federal Reserve.

Immediate FX consequences

Two clear market reactions followed. First, the prospect of lower tariff-driven inflation reduced upside risk to U.S. interest rates; this eased the yield advantage that had supported a stronger dollar. Second, the growth–inflation disconnect (slower GDP but sticky core inflation) has raised uncertainty over the Fed’s timing and scale of rate moves. The Dollar Index (DXY) dipped as traders trimmed positions that assumed long-term Fed hawkishness. The euro benefited from a relative perception of tighter policy in Europe, pushing EUR/USD higher.

Japan CPI softens: renewed pressure on the yen

Data snapshot

Japan’s January headline Consumer Price Index cooled to roughly 1.5% year‑on‑year, with core CPI (excluding fresh food) easing toward 2.0% and the broader “core‑core” measure (excluding both energy and fresh food) moderating as well. Those readings fall short of the prior stronger prints that had supported speculation about a BoJ tightening path.

FX impact on USD/JPY and JPY crosses

Weaker inflation makes it more likely the Bank of Japan will delay or proceed cautiously with rate adjustments, reinforcing a lower expected yield profile for JPY assets. The yen has responded by losing ground — USD/JPY moved up toward the mid-155s in the immediate reaction. For traders, that reinforces the case for JPY-funded carry and keeps attention on domestic wage trends and incoming BoJ communication for any hint of policy acceleration.

Practical implications for traders and investors

These near-term developments create a clearer, actionable set of cross-currents:

• EUR/USD: With the dollar pressured by the tariff ruling and Fed uncertainty, the euro finds support where ECB guidance is perceived as relatively tighter. Momentum traders can look for continuation above recent resistance levels, while risk managers should watch European macro prints and any Fed rhetoric that reasserts dollar strength.
• USD/JPY: The yen’s reaction to softer CPI points to further upside in USD/JPY if inflation remains subdued and the BoJ stays dovish. Breakouts above round numbers (e.g., 155) could attract trend-followers; reversals would hinge on wage growth surprises or BoJ tightening signals.
• Cross-asset correlations: Reduced tariff risk can be mildly positive for equities and compression of risk premia; conversely, divergent central-bank timing elevates FX volatility. Use options or tighter stops when trading around scheduled central-bank speeches or congressional developments related to tariff powers.

Conclusion

The recent Supreme Court decision on tariff authority and mixed U.S. growth/inflation data have combined to weaken the dollar and lift the euro, while softer Japanese inflation is pressuring the yen. The result is a repricing of central-bank expectations that favors EUR/USD strength and USD/JPY upside in the near term. Traders should prioritize event risk — Fed and BoJ communications, domestic economic releases, and any follow-up legislative action on tariff powers — and adjust position sizing to reflect elevated, but more directional, FX volatility.

Actionable focus: monitor incoming U.S. inflation signals and Fed commentary for dollar reversals, and watch Japanese wage and CPI trends for any signs the BoJ will alter its cautious stance.