Dollar Softens As Tariff Wall Cracks, Offering Breathing Room To Asian And Gulf Currencies

The US dollar has lost some steam heading into the end of February as investors digest a partial rollback of Trump‑era China tariffs and recalibrate expectations for Federal Reserve policy, offering modest relief to Asian and Gulf currencies that had been under pressure from earlier dollar strength.

Reuters reports that the dollar index slipped in early Asia on 23 February, with the euro up around 0.4% and sterling gaining similarly, as markets reacted to news that the US Supreme Court had rejected parts of former president Donald Trump’s tariff regime. The ruling effectively resets average tariffs on Chinese goods to roughly 26% and complicates Trump’s bargaining position in ongoing trade debates.

A Reuters Breakingviews column argues that the legal setback weakens Trump’s hand in negotiations with Beijing by removing some of the leverage he wielded through unilateral tariff hikes. However, it cautions that deep structural tensions remain over semiconductors, rare earths and technology transfer, meaning the broader “economic war” between Washington and Beijing will persist.

For Asian central banks, a softer dollar and partial easing of tariff uncertainty provide a small reprieve. Earlier in the month, Reuters highlighted how “holiday‑hit” Asian FX markets saw currencies like the Indonesian rupiah weaken ahead of rate decisions, while others treaded water in thin conditions. A more benign dollar path could reduce pressure on policymakers to defend currencies through aggressive interventions or higher‑than‑desired policy rates.

Gulf currencies, most of which are pegged to the dollar, feel the effects more indirectly. A strong dollar tends to tighten financial conditions globally and can weigh on oil demand and emerging‑market risk appetite, affecting Gulf exports and capital flows. A modestly softer dollar, combined with stable or gradually easing US yields, can support flows into both Asian equities and Gulf credit, as investors search for yield and diversification.

Nevertheless, FX markets remain highly sensitive to incoming data and policy signals. Reuters notes that the Fed appears in no rush to cut rates, and any upside surprises in US inflation or growth could quickly reignite dollar strength. Meanwhile, expectations that the Bank of Japan may hike its policy rate to 1% by mid‑year introduce additional complexity for yen crosses and carry trades.

For corporates and investors from Bangkok and Manila to Dubai and Riyadh, the current window of relative FX calm is an opportunity to reassess hedging strategies and funding mixes. Firms with dollar‑denominated debt or import exposures may choose to lock in gains, while those with export revenues or dollar assets weigh the trade‑offs of currency diversification.

Longer term, tariff resets and AI‑driven supply‑chain shifts will shape currency dynamics as much as interest‑rate differentials. If China succeeds in rerouting trade and deepening links with emerging markets, as Reuters’ trade analysis suggests, Asian and Gulf currencies could become more tightly interlinked through trade invoicing, investment flows and financial‑market integration.

For now, the dip in the dollar offers a brief pause in what has been a volatile start to 2026 for FX markets. Whether that respite endures will depend on how quickly global policymakers can provide clarity on tariffs, AI‑era regulation and monetary‑policy trajectories—issues that continue to loom over markets from Tokyo to Dubai.