By Ruth Carson

(Bloomberg) — A gauge of the dollar (DX=F) briefly rose to a more than one-week high and Treasuries fell as investors reacted to news that the vast majority of President Donald Trump’s global tariffs were deemed illegal by the US trade court.

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The currency strengthened as much as 0.4% on Thursday, before erasing most of its advance following the US Court of International Trade in Manhattan’s ruling that Trump wrongfully invoked an emergency law to justify the levies. The White House said it will appeal the decision.

Goldman Sachs Group Inc. (GS) analysts said the judgment represents only a temporary setback to Trump’s trade agenda and can be offset by other taxes.

“For markets, it’s a small deviation along the same path, same end goal. Tariffs are coming,” said Jordan Rochester, head of macro strategy for EMEA at Mizuho International Plc. “But on the margin, this pushes back on the consensus bearish dollar theme through a potential pick up in US growth expectations and so we may see some short covering.”

The dollar index has tumbled more than 7% since a February high as the trade war hurt sentiment toward US assets and fueled a re-think of the world’s reliance on the reserve currency. The court decision may allay some market jitters for now on just how far US tariffs could upend global trade and growth.

The yen and Swiss franc led losses against the dollar in Asian trading, as improved risk sentiment damped demand for traditional havens. The moves faded after the European open, even as rates markets held their direction.

Yields on 10-year US Treasuries (^TNX) rose five basis points to 4.53%, while two-year yields climbed as much as six basis points to around 4.05% before trimming gains.

The court decision suspends the vast majority of Trump’s tariffs: the global flat tariff, elevated rates on China and others, and fentanyl-related tariffs on China, Canada and Mexico are all covered by the ruling. But other tariffs imposed under different powers are unaffected, including those on steel, aluminum and automobiles.

Virginie Maisonneuve, global chief investment officer equity, at Allianz Global Investors, said investors should prepare for Trump to resist efforts to disrupt his trade policy agenda.

“I think we have to expect that he’s gonna try to do this,” Maisonneuve said on Bloomberg TV. “But what is really important here is this grassroot movement that we’ve been waiting for, for a while, in terms of putting a little bit more rationality around those practices.”

The ruling offers a welcome moment of relief to investors, but it also adds another source of uncertainty to the global trade dispute that has roiled markets this year. Traders have been forced to digest not just tariffs and counter-tariffs from the US and its rivals, but also a series of delays and reversals by Trump.

Now, they are being forced to confront yet another unknown: whether the White House can navigate legal challenges at home.

“Right now there are tariffs, and scope for more after July 9,” said Stephen Spratt, a strategist at Societe Generale in Hong Kong. “This raises the chance there are no tariffs, but it’s so difficult to know how much that chance has changed.”

Options Sentiment

Options traders remain bearish on the dollar over the next year, though with slightly less conviction. So-called one-month risk reversals — which track the difference in demand between bullish and bearish dollar bets — continue to show a preference for downside protection.

Data from the Depository Trust & Clearing Corporation reinforce that view. Despite the dollar’s sharp rebound in the spot market this week, bearish options positions still outpace bullish ones by approximately $13 billion in notional terms.

The euro, the Swiss franc, the Norwegian krone and New Zealand’s dollar show the strongest conviction for renewed gains against the greenback, based on the latest flow patterns and positioning metrics.

—With assistance from Alice Atkins and Alice Gledhill.

(Updates throughout.)

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