US dollar drops as investors prepare for court battle on tariffs

By Karen Brettell

NEW YORK (Reuters) -The dollar fell on Thursday as investors prepared for U.S. President Donald Trump to battle a U.S. trade court ruling on Wednesday that blocked most of his proposed tariffs.

A federal appeals court late on Thursday, however, reinstated Trump's levies on imports. The order from the United States Court of Appeals for the Federal Circuit in Washington provided no opinion or reasoning but directed the plaintiffs in the case to respond by June 5 and the administration by June 9.

The greenback showed little reaction to the news.

Senior Trump administration officials earlier downplayed the ruling's impact, expressing confidence it would be overturned on appeal and insisting other legal avenues are available in the interim.

"Markets were quick to realize that the ruling was sort of narrow, meaning it was only focused on one aspect of the tariff plan here - emergency authorization," said Brad Bechtel, global head of FX at Jefferies in New York. "There were still plenty of other avenues for Trump."

The dollar had rallied on the ruling.

The U.S. currency has weakened on concerns that tariffs will slow the economy and reignite inflation, while the erratic implementation of Trump's policies is seen as denting the appeal of U.S. assets to foreign investors.

"The deeper issue remains a persistent lack of clarity surrounding trade policy," said Uto Shinohara, senior investment strategist at Mesirow Currency Management in Chicago.

The Federal Reserve has kept interest rates on hold on concerns about higher inflation as Fed officials wait to see how the trade policies will affect the U.S. economy.

Trump, in a private meeting at the White House on Thursday, told Fed Chair Jerome Powell he was making a "mistake" by not lowering interest rates.

"This is not likely to be the end of tariff policy, and in some respects, if the administration wins its appeal or opts for alternative legal paths to tariff implementation, they could aim for the tariff agenda as a whole to be more entrenched than it was previously," Goldman Sachs' forex analysts said in a report on Thursday.

U.S. economic pessimism declined earlier this week after Trump on the weekend delayed a plan to impose 50% tariffs on European Union imports.

The euro was last up 0.73% at $1.1374 after falling to $1.1209, the lowest since May 19.

Against the Japanese yen, the dollar weakened 0.57% to 143.99. It earlier reached 146.28, the highest since May 15.

The dollar fell 0.59% to 0.822 Swiss franc.

The greenback also weakened on news that the number of Americans filing new applications for jobless benefits rose more than expected last week, and the unemployment rate appeared to have picked up in May, suggesting increasing layoffs as tariffs cloud the economic outlook.

Investors are also watching the progress of a tax cut and spending bill that is working its way through the U.S. Congress and which is expected to add trillions in U.S. debt over the coming decade. Some Republicans have criticized it for not having enough spending cuts.

Trump's budget chief said on Wednesday the White House intends to send Congress a package next week to formalize cuts made by billionaire Elon Musk's team targeting federal government spending.

Longer-dated U.S. Treasury yields rose last week and demand for the Treasury's 20-year bond auction was soft due to rising concerns about the deteriorating U.S. fiscal outlook.

The yen also weakened against the dollar earlier this week on reports that Japan will consider trimming issuance of super-long bonds in the wake of recent sharp yield increases in the country.

(Reporting by Karen Brettell; Additional reporting by Laura Matthews and Gertrude Chavez-Dreyfuss in New York, Rae Wee in Singapore, and Lucy Raitano in London; Editing by David Holmes, Richard Chang and Sandra Maler)