Trump’s Record State of the Union Sparks Dollar Weakness Amid Tariff Uncertainty
Robert J. Williams 
Alexandra Winters 
President Donald Trump delivered the longest State of the Union address on record—spanning 1 hour and 47 minutes—on February 24, 2026, yet the speech failed to deliver the tariff escalation signals that currency markets had anticipated. Instead of aggressive trade rhetoric, Trump reiterated his commitment to maintaining existing tariffs under alternative legal frameworks while signaling a preference for diplomatic solutions with Iran, prompting immediate dollar weakness as the US Dollar Index fell 0.2% in the hours following the address.
The mismatch between market expectations and Trump’s measured remarks has reshapen forex sentiment, with traders pivoting away from traditional dollar-safe-haven positioning toward higher-yielding currencies and risk assets.
What Trump Said About Tariffs and Trade
During his address, Trump emphasized that tariffs would “remain in place” and claimed they would substantially replace the modern income tax system. However, he offered limited forward-looking policy specifics regarding tariff escalation or new trade measures, disappointing traders who had positioned for more hawkish language following the Supreme Court’s recent ruling striking down his previous tariff authority.
Just days before the speech, the Supreme Court ruled 6-3 that Trump’s sweeping tariffs were illegal under the International Emergency Economic Powers Act (IEEPA). In response, the White House announced new 10% global tariffs effective immediately, with plans to escalate to 15% within 150 days under Section 122 of the Trade Act.
Key Tariff Details:
- Previous tariff authority ruled illegal by Supreme Court
- New 10% global tariffs already in effect
- Planned escalation to 15% within 150 days
- Congressional renewal required after 150-day period
- Effective tariff rate declined from 16% (2025) to approximately 13.7%
Iran Diplomacy Takes Center Stage
Trump signaled a notably dovish posture on Iran negotiations, stating:
“My preference is to solve this problem through diplomacy. But one thing is certain, I will never allow the world’s number one sponsor of terror, which they are by far, to have a nuclear weapon. Can’t happen.”
The president claimed the U.S. military had “obliterated Iran’s nuclear weapons program” and warned Iran against rebuilding its arsenal, yet the measured language fell short of the confrontational rhetoric some traders had expected, further dampening dollar strength.
Market Reaction and Currency Implications
The immediate aftermath of Trump’s speech revealed a striking divergence between actual rhetoric and pre-speech market positioning:
Dollar Index Performance:
- Declined 0.2% following the address
- Retreated to 97.67 as traders reassessed tariff escalation probability
- Loss of safe-haven bid despite earlier hopes for hawkish signals
Major Currency Pairs Respond:
- EUR/USD: Strengthened to 1.1800 levels, breaking above resistance
- GBP/USD: Held above 1.3500 for fourth consecutive session
- AUD/USD: Climbed above 0.7100 on divergent central bank policy
- USD/JPY: Volatile around 155-156 amid BoJ caution signals
What Markets Expected vs. What They Got
Traders had positioned for one of two scenarios: either Trump would escalate tariff rhetoric (dollar-bullish) or provide clarity on the legal pathway forward (moderately supportive). Instead, the absence of concrete policy announcements on trade led market participants to interpret the speech as neutral-to-bearish for USD strength.
Analysts noted that while tariff persistence could theoretically support long-term dollar appreciation by maintaining trade friction, the immediate removal of uncertainty appeared to outweigh this benefit. The speech inadvertently signaled that—despite Supreme Court setbacks—the administration lacked the political will or legal pathway for aggressive tariff escalation, reducing the dollar’s “brinksmanship premium.”
Broader Economic Context
Trump defended his first year in office as a “turnaround for the ages,” citing accomplishments in immigration enforcement, economic growth, and military readiness. He called for Congress to enact the SAVE America Act, requiring voter ID and proof of citizenship, though Senate passage faces 60-vote procedural hurdles.
On Ukraine, Trump stated his administration is “working hard” to end the conflict, claiming 25,000 soldiers die monthly in the Russia-Ukraine war—a figure he characterized as preventable had he remained in office through his first term.
Federal Reserve and Interest Rate Implications
The tariff reduction paradoxically may benefit the US dollar over the medium term by granting the Federal Reserve greater flexibility to pursue rate cuts without stoking inflation concerns. By reducing effective tariff rates from 16% to 13.7%, the administration inadvertently provided fiscal stimulus that could support growth while allowing the Fed to maintain rates higher than previously expected—a scenario that would eventually support USD strength once markets digest the policy shift.
However, in the immediate term, traders focused on the near-term reduction in tariff-driven inflation risks, which diminishes the urgency for the Fed to maintain elevated rates, weighing on the dollar.
Alexandra Winters says:
Trump’s restrained rhetoric on tariffs represents a subtle but critical shift—the market is repricing the dollar downward not because trade policy has softened, but because the administration’s legal constraints have become apparent to traders who previously expected brinksmanship escalation. The speech inadvertently confirmed that tariff persistence, while real, will be more measured than 2025 rhetoric suggested, opening the door for the Federal Reserve to cut rates sooner than hawks anticipated—a dynamic that could paradoxically strengthen the dollar in 6-12 months, even as it weakens it today.
Looking Ahead: Critical Catalysts
Upcoming Catalysts Over Next 48 Hours:
- US-Iran Nuclear Talks (Thursday, February 26): Scheduled negotiations in Geneva could reignite volatility in oil prices and currencies sensitive to geopolitical risk, particularly the Canadian dollar (USD/CAD).
- NVIDIA Q4 2025 Earnings (Today, February 25): The technology bellwether’s earnings release will test whether AI demand remains robust, with implications for broader risk sentiment and currency valuations.
- Eurozone Economic Data: Recent inflation readings of 1.7% (lowest since September 2024) are fueling EUR strength expectations.
- Australian CPI Data: January inflation at 3.4% trimmed mean supports RBA hawkish bias, underpinning AUD strength.
About Author
