Fed Governor Miran reiterated his call for aggressive rate cuts, but his comments were seen as predictable and had little impact on markets. Attention is shifting to US policy risks, with a potential Supreme Court ruling on tariffs posing a new source of uncertainty for the US Dollar (USD), MUFG's FX analyst Derek Halpenny reports.

Tariff uncertainty could undermine USD

"Fed Governor Miran is unlikely to be a Fed voting member to be swayed even if the jobs data on Friday is better than expected. He spoke yesterday and argued that the fed funds rate needs to be cut by over 100bps this year adding that policy is clearly restrictive and holding back the economy. His comments are predictable and hence lack impetus for moving the markets. The composition of the FOMC this week looks to us to leave the overall balance in voting broadly similar."

"There are other factors that should also help extend this downturn for the dollar this year but there will also be US-policy related flashpoints that could serve to undermine the dollar. The Supreme Court has now confirmed that Friday will be an “opinion day” that could see the Supreme Court rule on the legality of using IEEPA to implement global reciprocal tariffs. However, it is not certain that we will get the ruling."

"We lean toward the Supreme Court striking down the use of IEEPA which will trigger a bout of uncertainty for US companies once again. It’s highly likely the Trump administration has a Plan B ready to go – Section 122 for example would allow a 15% tariff for up to 150 days in order to protect the US from excessive trade balance of payments deficits. It’s unlikely that Plan B will be as all-encompassing and hence tariff revenue expectations would likely be downgraded, potentially steepening the US Treasury yield curve and potentially weakening the dollar."