The United States dollar index (DXY) ended Friday modestly lower, surrendering earlier gains but still finishing 0.9% higher on the week, after the Supreme Court of the United States struck down President Donald Trump’s sweeping tariffs imposed under the International Emergency Economic Powers Act (IEEPA).
The ruling, delivered in a 6–3 decision, concluded that the IEEPA does not authorise the president to impose tariffs. The decision invalidates the so-called “Liberation Day” reciprocal tariffs and the 25% IEEPA-based duties on Canada, China and Mexico, although measures introduced under other trade statutes remain intact.
Among data releases, U.S. fourth-quarter gross domestic product (GDP) expanded at an annualised 1.4%, sharply below the 3.0% expected and decelerating markedly from the previous quarter’s 4.4% pace.
The government shutdown during Q4 is estimated to have shaved up to 1.5 percentage points off headline growth, compounding concerns over slowing momentum.
At the same time, inflation data offered little comfort. The personal consumption expenditures (PCE) price index rose 2.9% year-on-year in December, slightly above expectations.
Core PCE accelerated to 3.0% from 2.8%, exceeding the 2.9% forecast. On a monthly basis, both headline and core measures increased 0.4%, above the 0.3% estimate.
In isolation, the hotter-than-expected inflation print would typically underpin the Dollar by reinforcing expectations that the Federal Reserve will keep rates within the 3.50%–3.75% range for longer.
However, the sharp GDP miss complicated the narrative, raising stagflationary concerns and limiting directional conviction.
DXY drifted into the 97.85–97.90 region ahead of the court’s decision before extending losses towards 97.75 in the immediate aftermath of the ruling.
The move reflected a repricing of structural inflation risk, as the removal of IEEPA tariffs potentially eases longer-term price pressures and narrows the dollar’s yield advantage.
Although the decision introduces uncertainty over more than $175 billion in collected duties, markets had widely anticipated the outcome.
The Trump administration has signalled it may pursue alternative trade authorities, including Sections 301, 232 and 122 of the Trade Act, to replicate elements of the tariff framework.
Additional U.S. data later in the session added to the softer tone. Preliminary S&P Global PMIs for February showed both manufacturing and services activity easing, while the University of Michigan’s consumer sentiment index came in below consensus.
Notably, one-year and five-year inflation expectations edged lower to 3.4% and 3.3%, respectively, suggesting households may already be adjusting to a post-tariff landscape.
Euro steady amid US growth concerns
EUR/USD traded broadly steady on Friday, though the pair posted weekly losses of 0.8% as investors balanced weaker U.S. growth against sticky inflation.
The softer GDP print points to cooling U.S. economic momentum, while firm PCE data underscored the Fed’s cautious stance.
Minutes from the January policy meeting indicated policymakers remain concerned about persistent price pressures and are prepared to tighten further if inflation fails to return sustainably to the 2% target.
Meanwhile, the euro area’s preliminary HCOB Composite PMI rose to 51.9 in February, beating estimates of 51.5 and January’s 51.3, as stronger manufacturing and services activity lifted overall output; Manufacturing PMI returned to expansion at 50.8, above forecasts of 50.0 and the prior 49.5, while Services PMI edged up to 51.8 from 51.6 but fell short of the 52.0 consensus.
Aussie holds near multi-year highs
AUD/USD settled at 0.7080 on Friday, up 0.4% on the day and 0.2% for the week, and finishing near a fresh three-year high.
The pair benefited from the weaker U.S. GDP print, though the firmer core inflation reading complicates the medium-term outlook.
Slowing growth supports the case for eventual monetary easing in the U.S., but resilient inflation may prompt the Fed to remain cautious.
For the Australian dollar, sensitivity to global risk sentiment remains elevated. While the Reserve Bank of Australia has maintained a relatively hawkish tone amid a solid labour market backdrop, near-term moves continue to be driven largely by expectations for U.S. rates and broader dollar dynamics.
Pound slips, policy divergence remains in focus
The GBP/USD currency pair edged 0.1% higher on Friday but posted weekly losses of 1.3%. Sterling gained modest support after the U.S. Supreme Court ruling weighed on the dollar, alongside the softer U.S. GDP release.
In the UK, retail sales rose 4.5% in January, beating expectations of 2.8%, according to the Office for National Statistics.
Flash PMI data also signalled expansion in both services and manufacturing.
However, softer employment data in Q4 2025 has reinforced expectations that the Bank of England may ease policy further. Money markets have priced in an 80% probability of a rate cut in March, while expectations for the Fed’s first cut have shifted towards June.
This divergence in rate paths could cap further upside in the near term, even as the broader uptrend remains intact.
Yen firms as inflation cools
The USD/JPY currency pair settled at 155.027, little changed on Friday but lifting 1.6% for the week.
The Japanese Yen found support after inflation moderated. Japan’s headline consumer price index rose 1.5% year-on-year in January, down from 2.1% previously and marking the slowest pace since March 2022. Core measures also eased.
The cooling in price pressures may temper expectations of additional tightening by the Bank of Japan, prompting investors to reassess the timing of further policy normalisation.
Economic calendar week ahead
Monday sees Japan closed for Emperor’s Birthday and China shut for the Lunar New Year, with both set to reopen on Tuesday.
On Tuesday, attention turns to the U.S., where Federal Reserve Governor Waller is scheduled to speak alongside releases including the Chicago Fed National Activity Index, factory orders and the Dallas Fed manufacturing index.
South Korea publishes consumer confidence and producer price data, while China reports its one-year and five-year Loan Prime Rates and foreign direct investment figures. In Europe, new car registrations are due, and the UK releases CBI distributive trades data.
Wednesday brings a heavy U.S. schedule, including ADP employment change data, multiple Fed speeches, the S&P CoreLogic Case-Shiller 20-City Home Price Index, Conference Board consumer confidence and MBA mortgage rate data.
Australia reports CPI inflation, while the euro area publishes its CPI reading. South Korea releases business confidence figures.
On Thursday, Canada reports wholesale sales, while the U.S. publishes its weekly Fed balance sheet and hosts further central bank commentary. South Korea announces its interest rate decision, Japan hears from a Bank of Japan policymaker, and the euro area releases economic sentiment data.
Friday’s focus shifts to U.S. initial jobless claims and further Fed commentary, alongside Canadian earnings and current account data. Japan reports Tokyo CPI, industrial production and retail sales, while the UK releases GfK consumer confidence and Nationwide house price data, with additional Japanese construction indicators also due.
Saturday features Canadian GDP growth and U.S. data, including producer prices, the Chicago PMI and construction spending.
The week concludes on Sunday with South Korea’s trade balance, import and export figures.
