Commerzbank’s Volkmar Baur argues that the shift from IEEPA to Section 122 tariffs leaves the US administration on uncertain legal ground, with potential challenges and repayments ahead. He notes that political and fiscal uncertainty are likely to burden the Dollar, and that past episodes show US Dollar weakness can accelerate quickly when political pressure resurfaces.
Tariff legality and fiscal doubts pressure Dollar
“Political uncertainty could therefore soon become a burden for the dollar again.”
“With regard to the current account, it is still difficult to speak of a balance of payments crisis. Although the current account deficit is high, it is financed by foreign investment in the US.”
“Why am I writing this? Quite simply, with the Trump administration’s shift from the IEEPA tariffs, which the Supreme Court has just declared invalid, to the Section 122 tariffs, the US government has not exactly put itself on legally secure ground. It could well be that these tariffs will also be challenged soon and that they too will have to be repaid at some point.”
“This means that not only is the future of the tariffs uncertain, but so too is the revenue that the US government is currently generating from them. Both the political uncertainty and the uncertainty surrounding the already high US fiscal deficit will continue to weigh on the US dollar.”
“However, if political pressure comes to the fore, things can suddenly move very quickly. This is a risk that should definitely be kept in mind.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/usd-legal-tariff-risks-weigh-on-dollar-commerzbank-202602250646
