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Investors grappled with US trade uncertainty overnight. The Dow Jones and S&P 500 indices declined by 1.7% and 1%, respectively, after President Donald Trump responded with a maximum global tariff of 15% under Section 122 to the Supreme Court’s decision to strike down his use of the International Emergency Economic Powers Act (IEEPA) to unilaterally impose reciprocal tariffs. The tech-heavy Nasdaq Composite Index fell by 1.1%, driven by fears that AI could undermine white-collar AI profits. Investors fled to traditional safe havens. Gold prices surged by 2.4% to USD5277/oz, up 7.2% from a low of 4878 on February 17. The US Treasury 10Y yield fell 5.2 bps to the year’s low of 4.03%.
While the DXY Index was barely changed at 97.72, JPY and CHF rose by 0.26% and 0.12% respectively as havens. CAD depreciated most in the DXY market by 0.12% after Canadian officials warned that the Section 122 tariffs could leave the country worse off than before. The EU suspended the ratification of a trade deal struck in late 2025 and is seeking clarity on how the ruling impacts previous agreements. India also deferred previously scheduled talks to finalise a trade agreement due to the new legal uncertainties. EUR/USD was unchanged at 1.1785 while INR rose marginally by 0.1% to 90.88.
Fed Governor Christopher Waller did not expect the Supreme Court’s tariff ruling to affect his interest rate outlook. Waller’s decision to support a rate cut at the March 18 FOMC meeting will depend on the labour market. Today, the US Conference Board is expected to report an improvement in its consumer confidence index to 87.1 in February from 84.5 in January, driven by rises in both expectations and present situation. The market is not pricing a Fed cut at the March or April meetings because the Senate confirmation hearing of Kevin Warsh, Trump’s nominee to succeed Fed Chair Jerome Powell in mid-May, is still held up.
Focus falls on President Trump’s State of the Union Address (SOTU) on February 24 at 9:00 pm ET or February 25 at 10:00 am SGT. Trump warned that the speech would be long amid a partial government shutdown and boycotts by several House Democrats. Markets expect SOTU to become his rallying cry for the 2026 midterm elections amid sagging approval ratings. Trump is expected to address affordability issues with populist measures such as capping credit card interest rates at 10%, lowering prescription drug prices, and restricting corporate dominance of the housing market. To resell his “America First” economic vision to the public, Trump will expect Kevin Warsh to follow his roadmap toward much lower interest rates and a smaller Fed balance sheet to boost US growth to 15%.
Investors will want clarity on how Trump intends to circumvent the Supreme Court’s ruling to maintain his tariff policy, i.e., by relying on short-term emergency statutes as a bridge to establish more permanent and investigation-backed tariffs. Tariffs are Trump’s primary tools for economic and geopolitical leverage – tariff revenue to replace or offset federal income taxes, tariffs as a weapon of choice to get foreign nations into trade deals, and tariffs to force companies to move manufacturing back to the US. Foreign nations will be looking for SOTU to signal a return to constitutional norms or a more aggressive, blunt-force approach using the administration’s remaining executive powers.
In summary, the overnight price action reinforces the view that the USD is not trading purely on interest rate differential but increasingly on institutional credibility and policy coherence. The latest tariff episode adds a layer of political risk, diluting the USD’s traditional haven appeal. While it does not signal an imminent USD crisis, USD rallies could prove shallower and more episodic going forward.
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