Dollar extends gains with jobs data and potential tariff ruling in focus

The Bureau of Labor Statistics will publish the U.S. employment report for December prior to the market open, with economists looking for a jobs gain of around 70,000 and a dip in the unemployment rate to 4.5%.

The reading isn’t likely to trigger an immediate reaction from the Federal Reserve, however, even though the central bank sees a weakening labor market as a risk that could outweigh stubbornly high inflation. That view has kept the central bank from committing to deeper rate cuts, which in turn has kept upward pressure on the dollar as well as Treasury bond yields for much of the week.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was up 0.12% at 99.06.

The index has risen around 0.65% for the week amid its best five-day run since November, and trading at the highest levels since early December.

The market’s larger focus, however, likely will be on an expected Supreme Court ruling on President Donald Trump’s use of the 1977 International Emergency Economic Powers Act (IEEPA) in setting so-called reciprocal tariffs on goods arriving into the U.S. from various trading partners.

While the Supreme Court hasn’t explicitly said it will hand down its ruling on Friday, its regular schedule of opinion releases suggests a decision could arrive as early as 10 a.m. Eastern time.

A ruling against the administration could trigger tariff refunds totaling as much as $150 billion, according to some estimates, while calling a series of trade deals reached last year into question.

“Overall, this scenario could be interpreted by markets as easing inflation pressures and improving corporate profitability, while at the same time worsening the fiscal outlook and reducing expectations for Trump’s proposed ‘tariff dividend’ stimulus," said Francesco Pesole, FX strategist at ING.

“Net-net, this could be a moderate dollar positive as the Fed has been more focused on growth and jobs than inflation, which hasn’t picked up dramatically with tariffs, and could therefore feel less pressure to ease," he added.

However, Steve Englander, head of global G10 FX research at Standard Chartered, sees it differently.

“The key element in the decision, in our view, will be whether there is a clear path for keeping past and future tariff revenues intact—that would be dollar positive," he said in a note published Friday.

“Refunds and significantly diminished tariff revenues would pressure rates higher and would likely be dollar negative," he added.

Write to Martin Baccardax at martin.baccardax@barrons.com