The U.S. dollar slipped on Monday as growing uncertainty surrounding President Donald Trump’s trade tariffs and renewed geopolitical tension ahead of U.S.–Iran nuclear negotiations weighed on investor sentiment.
As of 16:15 Hanoi time, the U.S. Dollar Index — which measures the greenback against a basket of six major currencies — fell 0.3% to 97.487. The pullback follows last week’s roughly 1% surge, the strongest weekly gain in more than four months.
After a powerful rebound, the dollar is now facing renewed headwinds from legal uncertainty over trade policy and cautious positioning ahead of sensitive diplomatic developments in the Middle East.
Currency markets were rattled after the U.S. Supreme Court ruled on Friday that Trump’s sweeping tariffs exceeded his executive authority. In response, the president criticized the decision and swiftly imposed a 15% blanket tariff on imports under alternative legal provisions.
The legal setback injected fresh ambiguity into U.S. trade policy. Investors are grappling with multiple unresolved questions:
Will previously collected tariffs need to be refunded?
Can the administration sustain new tariffs beyond 150 days?
Could further court challenges prolong the uncertainty?
Notably, the Supreme Court did not clarify whether importers are entitled to refunds for duties already paid under the invalidated framework. Analysts warn that this could trigger years of litigation, adding complexity to the economic outlook.
Economists at ING noted that the revised tariff structure could alter competitive dynamics globally.
“This means countries such as China and Brazil could potentially receive lower tariff treatment, while nations like the United Kingdom and Australia may lose the relative advantage of previously negotiated 10% deals,” ING analysts wrote. “Many countries are now reassessing their trade arrangements with the United States, with the European Union likely at the forefront.”
The evolving tariff landscape has made it increasingly difficult for currency traders to price in long-term dollar fundamentals.
Beyond trade, geopolitical tension is adding another layer of uncertainty.
The U.S. has reportedly increased its military presence in the Middle East as pressure mounts on Iran to halt its nuclear ambitions. Washington and Tehran are expected to hold further talks later this week.
Although the U.S. refrained from launching military action over the weekend, analysts suggest the mere possibility of escalation is influencing capital flows.
According to ING, the absence of immediate military conflict may have contributed to the dollar’s pullback. However, the broader uncertainty surrounding trade policy remains a dominant factor undermining confidence in the greenback.
In periods of geopolitical stress, the dollar often strengthens as a global reserve currency. Yet in this instance, domestic policy unpredictability appears to be offsetting traditional safe-haven demand.
In Europe, EUR/USD rose 0.3% to 1.1811, benefiting from dollar softness and improving regional economic data.
Recent data showed Eurozone business activity accelerated more than expected this month, with manufacturing returning to growth for the first time since October.
The momentum was reinforced Monday by Germany’s Ifo Business Climate Index, which rose to 88.6 from 87.6 the previous month — signaling rising corporate confidence in Europe’s largest economy.
ING analysts suggested that the European Union may not face a significantly worse trade arrangement under the revised U.S. tariff regime compared to previous expectations.
“That is a framework European exporters have already learned to navigate,” the bank noted.
The euro’s resilience reflects both internal economic stabilization and relative improvement compared to U.S. policy volatility.
The British pound also edged higher, with GBP/USD gaining 0.2% to 1.3514.
Sterling found support ahead of several key domestic developments:
Testimony by Bank of England Governor Andrew Bailey before the Treasury Committee
A by-election in Gorton and Denton scheduled for Thursday
Political uncertainty could re-emerge if the ruling Labour Party suffers a significant defeat, potentially reigniting leadership speculation and weighing on the pound.
For now, however, broader dollar weakness is providing near-term support.
In Asia, USD/JPY fell 0.3% to 154.63, with the Japanese yen gaining modestly as investors adopted a cautious stance toward global trade risks.
The yen traditionally benefits during periods of heightened uncertainty due to Japan’s strong external position and deep capital markets. However, trading activity was subdued due to a public holiday in Japan.
Meanwhile:
USD/CNY was largely unchanged at 6.9087, with Chinese markets closed for Lunar New Year celebrations.
AUD/USD remained steady at 0.7084.
NZD/USD ticked up 0.1% to 0.5982.
The muted moves in Asia-Pacific currencies reflect thin liquidity conditions rather than a decisive shift in risk appetite.
The dollar’s decline on Monday highlights a shifting narrative in global currency markets.
While higher tariffs can theoretically strengthen a currency by reducing imports, prolonged trade disputes and legal uncertainty may deter investment and dampen growth expectations.
If litigation over tariffs stretches into years and refund liabilities strain fiscal resources, confidence in U.S. economic stability could erode further.
At the same time, diplomatic outcomes with Iran will remain a key catalyst. A peaceful negotiation path may stabilize markets, while escalation could revive safe-haven flows — though not necessarily to the dollar alone.
The U.S. dollar’s retreat reflects a complex interplay of trade policy uncertainty and geopolitical risk. President Donald Trump’s abrupt shift to a 15% global tariff following a Supreme Court rebuke has introduced legal ambiguity that markets are still digesting.
Simultaneously, upcoming U.S.–Iran nuclear talks and regional military positioning are adding to investor caution.
For now, the greenback’s recent rally appears to be losing momentum as traders reassess risk exposure in a world where policy direction — both economic and geopolitical — remains far from settled.
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