USD: Trust in the US is shaken – Commerzbank

Yesterday, there was a brief glimmer of hope that US courts might overturn the US government's tariff policy. The resulting recovery of the US dollar was short-lived. After an appeals court blocked a corresponding injunction, the dollar took a significant hit. Of course, the ruling is preliminary. The final outcome is not necessarily clear. Nevertheless, the US government has already made it clear that it would pursue further legal avenues if necessary: appealing to the Supreme Court, finding other legal grounds for the tariffs, etc, Commerzbank's Head of FX and Commodity Research Ulrich Leuchtmann notes.

The uncertainty of the Big Beautiful Bill

"And in any case, one must ask how capable the judiciary in the US is of stopping the government. The poor guy who remains in prison in El Salvador, even though this situation contradicts current US case law, is not only regrettable, but also a warning sign that the legal control of the US government is de facto incomplete. He is therefore not only relevant to US migration policy, but also to other policy areas, including trade policy."

"Can we really believe that in case of doubt – when it is more relevant than it is at present – the president will accept the Fed's independence? Here, too, legalistic arguments can be made to explain why the president has only limited options to curtail Fed independence under the current legal framework. But here, too (as above), the market is unlikely to derive sufficient certainty from this. From a market perspective, confidence in the US legal system is likely to become increasingly insufficient, regardless of what individual court rulings say."

"I find it particularly interesting that a section of the tax bill currently before the US Senate (the 'big beautiful bill') is attracting increasing attention: section 899. This gives the US president the right to impose a special tax on foreign investors in the US if the taxes in their home country are considered unfair from the US perspective. Europe would also be affected by this. Section 899 shows that what was feared is actually happening: now that the US government is realizing that tariffs are not a simple tool for forcing other countries into compliant behavior, alternative instruments are needed. Anyone who invests in the US or who is considering investing in the US must be aware of this. In my view, it is highly questionable how much of a premium the dollar still deserves for allowing capital to be invested there."