US Dollar Slides as Legal Battle on Tariffs Continues. Forecast as of 30.05.2025
If tariffs are canceled, the Fed is likely to continue lowering interest rates, which will put pressure on the US dollar. The budget deficit resulting from lower import duties will also need to be addressed. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The tariffs remain in effect pending an appeal to the Supreme Court.
- The cancellation of tariffs will allow the Fed to lower rates.
- Trump believes that the Fed is making a mistake.
- Long trades formed at 1.1225 on the EURUSD pair can be kept open.
Weekly US Dollar Fundamental Forecast
Tariffs are generally considered harmful, but their absence has similar negative implications. The US dollar is losing ground amid disputes between the US executive and judicial branches. The Federal Appeals Court has issued a ruling that suspends the International Trade Court’s decision regarding the legality of the tariffs. These measures will remain in effect until the US administration’s appeal is reviewed by the Supreme Court. Meanwhile, investors are gradually resuming their purchases of the EURUSD pair.
According to the Federal Appeals Court ruling, all fees paid by US importers prior to the Supreme Court’s verdict will be refunded to them with interest. The question has been raised regarding the legality of the US administration’s actions. If these actions are deemed unlawful, should a reimbursement be issued for funds previously allocated to the budget through tariffs imposed on “Liberating Day”? In April, the US collected a record amount of customs and excise taxes.
US Customs Duties Collected
Source: Bloomberg.
The US administration had intended to use these funds to offset the fiscal stimulus package being considered by Congress. According to estimates by the Budget Committee, the initiative is projected to cost $3.8 trillion over the next decade. In the absence of funding sources, it will be necessary to increase the volume of Treasury issuance. Attracting non-residents to the US debt market is a significant challenge. As a result, the US dollar is likely to face strong headwinds.
On paper, the elimination of tariffs would redirect investors’ focus to monetary policy. The Fed is maintaining current interest rates, while the ECB is expected to cut rates, which could favor EURUSD bears. However, the positions of central banks are contingent on US trade policy. According to Chicago Fed President Austan Goolsbee, if import tariffs are terminated, the Fed will revert to its previous stance before April 2, implying that monetary policy can be eased. Conversely, the European Central Bank is expected to adopt a more cautious approach, which is likely to support the euro.
According to Jerome Powell, the Fed will make decisions based on a thorough, objective, and non-political analysis. The US regulator will certainly take into account both the slowdown in inflation and the lowest consumer spending growth in almost two years in the first quarter.
US GDP and Personal Spending
Source: Bloomberg.
Donald Trump stated that the Fed chairman’s position on interest rates was flawed. Maintaining low rates could hinder the US economy’s competitiveness against China and other global markets. However, the US central bank’s hesitation is primarily driven by uncertainty surrounding tariffs.
Notably, the tariffs may remain in effect. The US administration has a plethora of relevant legislation at its disposal, which it can refer to as needed. The primary reason why it is not doing so is due to the appeal, and referring to other documents would be a strategic misstep.
Weekly EURUSD Trading Plan
The EURUSD pair failed to settle below the 1.1225 level, allowing traders to form long trades, which can be kept open.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
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