The U.S. dollar sank at the start of the trading week after the U.S. Supreme Court ruled that former President Donald Trump exceeded his authority by imposing broad tariffs on global trading partners. Traders reacted fast, shifting money out of the greenback and into other major currencies, like the euro, the pound, and safe-haven assets such as the Japanese yen. This ruling has injected fresh volatility into global currency markets and ignited serious questions about the future direction of U.S. trade policy.
Supreme Court Overturns Tariffs, Markets React
On Friday, February 20, 2026, the Supreme Court invalidated sweeping tariff measures that Donald Trump enacted under emergency powers — a decision that roiled markets on Monday. The court found that the tariffs exceeded the executive’s legal authority, forcing traders and economists alike to reassess the direction of U.S. policy.
The immediate result showed up clearly in forex prices. The U.S. dollar index (DXY) — a key gauge of U.S. currency strength against major peers — fell roughly 0.4%, reflecting broader concern. The euro rose about 0.4%, and the British pound gained a similar amount. The Japanese yen strengthened by close to 0.5% against the dollar, as traders searched for safety amidst uncertainty.
These moves weren’t dramatic, but they reflected deep unease in financial markets over what comes next and how trade policy might evolve.
Confusion Over Replacement Tariffs Adds to Volatility
Shortly after the court’s decision, President Trump responded angrily and announced a new 15% tariff on imports under a different legal authority. That move added another layer of confusion for markets, because it raised questions about whether the new tariff regime would stick and how it might affect bilateral and multilateral trade agreements.
The lack of clarity has left traders uncertain about future U.S. trade policy. Investors hate uncertainty. When traders don’t know what comes next, they sell first and ask questions later. That instinct pushed the dollar lower and lifted several other currencies.
Forex Markets Digest Policy Shock
Global forex markets reacted quickly on Monday. Major currency pairs showed clear directional shifts:
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EUR/USD climbed, as traders bought euros against a softer dollar.
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GBP/USD pushed up, reflecting stronger demand for the British pound.
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USD/JPY fell, with Japan’s currency attracting safe-haven flows.
Many analysts pointed out that these shifts may still be early reactions to headlines rather than sustainable trends. They noted that longer-term currency directions depend on evolving trade policy and economic data from both sides of the Atlantic.
Broader Market Impact
The dollar’s decline didn’t happen in isolation. Equity markets, commodities, and cryptocurrencies also felt the ripple effects of the court’s ruling and policy confusion:
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Oil prices eased, as traders weighed reduced risk of trade disruptions and the potential easing of protectionist barriers.
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Bitcoin tumbled, falling as much as 5% early Monday, as risk-on speculative assets lost steam.
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Asian stock markets showed mixed results, with some benchmarks rising on renewed optimism while others lagged.
These moves show just how interconnected forex markets have become with broader financial markets, especially when policy shocks hit.
What Traders Are Saying
Currency strategists shared different takes on the dollar’s weaker stance. Some believe the initial drop reflects a knee-jerk reaction to headlines rather than a fundamental shift in global economics. Others warn that stripping away a major pillar of U.S. trade policy could have lasting effects on the dollar’s global role.
Sim Moh Siong, a strategist at OCBC Bank, said that the ruling could ultimately benefit non-U.S. economic growth by reducing trade barriers and opening markets. He also cautioned that the longer-term impact on the dollar’s fiscal position remains unclear.
The Ripple Effects on Asian Currencies
While the dollar weakened broadly, many Asian currencies climbed alongside risk appetite. The Japanese yen, long seen as a safe haven, strengthened as traders sought refuge. Other emerging Asian currencies gained modestly, supported by a softer greenback and hopes for smoother global trade conditions.
In India, the rupee initially ticked up against the dollar as markets opened, but it gave up some gains later in the session. This reflected local factors, including import demand and hedging flows, which tempered the impact of the U.S. ruling.
What Comes Next
Forex markets now face several key uncertainties:
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Legal Challenges: Investors await details on how and whether the Biden administration or Congress may respond to the court’s ruling.
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Trade Policy Clarity: The new 15% tariff announcement under a different legal basis has created confusion. Markets want clarity on how it will work and what goods it will affect.
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Fed Policy Outlook: Currency traders are watching U.S. Federal Reserve signals closely. Fed rate decisions and inflation data will play a huge role in shaping the dollar’s future.
In the near term, most analysts expect continued volatility. Currency markets thrive on certainty and struggle with ambiguity. Until traders get a clearer picture of U.S. policy and global economic direction, forex volatility will likely remain elevated.
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