Key U.S. Employment Data and Trump Tariff Ruling Could Influence Market Volatility

Financial markets are bracing for the release of key U.S. employment data and a long-awaited Supreme Court ruling on the legality of President Donald Trump's emergency tariff powers. Both events could significantly influence market sentiment and trade policy. The nonfarm payrolls report for December will provide clarity on the U.S. labor market after a recent government shutdown obscured data availability. Analysts expect the report to offer insight into the Federal Reserve's interest rate outlook.

The U.S. dollar has shown a slight upward trend in anticipation of the data. The dollar index rose 0.16% to 99.04, marking its highest level in a month. This suggests that investors are positioning for a potential USD rally if the payrolls data exceeds expectations. The euro also edged lower against the dollar, down 0.12% to $1.1644, as German export figures unexpectedly declined.

The Supreme Court is expected to rule on whether Trump was within his authority to use the International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs without congressional approval. This decision could redefine the legal framework of U.S. trade policy and impact ongoing negotiations with partner nations.

Why Did This Happen?

The ruling will determine the future of tariffs imposed by the Trump administration in 2025. Lower courts previously ruled that these tariffs exceeded presidential authority, and the Supreme Court is now tasked with deciding whether to uphold or overturn those rulings. A loss for the administration could result in the refund of over $133 billion in duties to importers, potentially creating market uncertainty.

The ruling also carries broader implications for U.S. trade policy. If the court invalidates the IEEPA-based tariffs, the administration has indicated it could rely on alternative tariff authorities, such as those from the Trade Act of 1974. Treasury Secretary Scott Bessent has publicly defended the administration's use of tariffs, stating they have encouraged investment and job creation in the U.S.

How Did Markets React?

Markets have already begun to price in potential outcomes. The U.S. dollar has gained modestly, and Fed funds futures suggest an 86% probability that the Federal Reserve will hold rates steady at its next meeting on January 27 and 28. Gold has consolidated as traders await the release of nonfarm payrolls data.

Prediction markets also reflect uncertainty. Kalshi and Polymarket currently assign the Trump administration a 26–29% chance of winning the case, down from nearly 49% in early November. This shift indicates growing skepticism about the legal justification for the tariffs.

What Are Analysts Watching Next?

Analysts are closely monitoring the Supreme Court ruling, as well as the nonfarm payrolls data, for signals on the Fed's next steps. Francesco Pesole of ING noted that a strong payrolls report combined with a ruling against the tariffs could be modestly positive for the U.S. dollar.

Investors are also watching for any immediate policy response from the Trump administration. If the Supreme Court rules against the tariffs, the administration may announce alternative measures to maintain trade barriers, potentially limiting the economic impact. Analysts warn that uncertainty could weigh on equity markets, particularly sectors like retail, which are sensitive to trade policy.

Treasury Secretary Bessent has also urged the Federal Reserve to pursue interest rate cuts, arguing that lower rates could stimulate economic growth. This has added another layer of market anticipation as investors assess the Fed's response to incoming data.

The nonfarm payrolls report and the Supreme Court ruling represent two key inflection points in the current economic landscape. Both outcomes will shape the trajectory of U.S. monetary and trade policy in the near term, with significant implications for global investors.