There are numerous uncertainties during Trump's term! European officials are weighing whether they can still rely on the Federal Reserve to provide dollars.

After President Trump took office in the USA, many of his measures in trade, diplomacy, and military security were distinctly different from the USA's previous long-term policies, which seemed to cause a rift in the alliance relationship with Europe.

In this context, informed sources told the media that some European Central Bank and regulatory officials are questioning whether they can still rely on the Federal Reserve to provide dollar financing when the market is under pressure, leading to some doubts about the Federal Reserve, which has always been a cornerstone of financial stability.

Are European officials beginning to worry about the Federal Reserve's financing prospects?

During periods of market pressure, the Federal Reserve typically provides dollar financing channels for the European Central Bank and other major central banks. However, two sources stated that some officials have been considering whether they can find alternative Institutions outside the Federal Reserve.

It is reported that at a European forum where some participants assessed potential risks to the financial system, these officials discussed the possibility of the US government pressuring the Federal Reserve to suspend its dollar support program.

Although sources indicate that European officials believe the likelihood of the Federal Reserve not fulfilling its funding support is extremely low, and the Federal Reserve itself has not given any signals to suggest otherwise. However, European officials have already had informal discussions about this possibility—indicating that their trust in the US government has been shaken by some policies of the Trump administration.

Six sources stated that the conclusion of the discussions among officials is that there is nothing that can effectively replace the Federal Reserve. These six sources include senior officials from the European Central Bank and EU banking regulators who have first-hand knowledge of these discussions.

A source who is directly familiar with the discussions said that in recent weeks, a working group assisting officials in reviewing issues discussed this matter, with senior officials from the European Central Bank and regulatory Institutions also participating in the discussions.

Another official indicated that the question of whether Europe can rely on support from the Federal Reserve is expected to arise in more formal discussions soon.

The possibility of the Federal Reserve reducing funding limits is low.

Five Eurozone central bank officials who wished to remain anonymous told the media that although banking officials expressed concerns in private conversations, European officials believe that the likelihood of the Federal Reserve cutting funding limits is very small.

This is because such a move by the Federal Reserve would have profound effects on Global markets, financial stability, and the economy. Several sources stated that it could also have a backlash on the US economy, threaten the dominance of the dollar, and suppress demand for US Government Bonds.

Although the independence of the Federal Reserve is not questioned, four of the six sources familiar with the discussions indicated that some European officials believe that the Trump administration may increase pressure on the Federal Reserve over time, leading to the Fed not providing dollar funding.

One of the sources noted that EU officials are concerned about the dollar short-term borrowing of European Banks, making it crucial to continue obtaining funding limits from the Federal Reserve.

A recent study by the European Central Bank showed that about 17% of financing for Eurozone Banks is conducted in dollars.

Editor/lambor