The greenback was trading off session highs after an initial knee-jerk spike following a trade court ruling that found Trump overstepped his authority by imposing across-the-board duties on imports from US trading partners.
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.
“However, 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 US economy, so reversing those tariffs would be a positive for the dollar,” Ikeda said.
US 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 US markets as Trump’s erratic trade and tax policies sap confidence and spur inflation.
Today, the dollar reversed some of those moves and rose 0.64% against the yen at 145.77 after touching a two-week high of 146.2 earlier in the session.
It was last 0.67% higher against the Swiss franc at 0.83245.
The euro slipped 0.4% to US$1.12445 and sterling slightly weaker at US$1.344.
That left the dollar index, which measures the US currency against six major peers, back above 100 for the first time in a week.
“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.
Despite today’s spike, the index is down 8% this year and analysts said that the new court ruling did little to offer clarity on the outlook for tariffs and they were sceptical of a sustained dollar rally in the face of a long court battle.
Treasuries were also sold off, with yield on the 10-year note up 2.6 basis points at 4.503%.
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.
US 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, while also monitoring any developments on Trump’s US tax and spending bill.
Moody’s this month lowered its US credit rating, citing the worsening fiscal outlook for the world’s biggest economy.
However, investor sentiment slightly improved this week after Trump delayed on the weekend a plan to impose 50% tariffs on EU imports and investors are on the lookout for any signs of improving relations between the US and its trade partners.