Dollar Dependency: Global Banks Brace for U.S. Currency Shocks

The Bank of England has requested several lenders to evaluate their resilience to fluctuations in the U.S. dollar, highlighting growing unease with the Trump administration's policies impacting the stability of the global financial system. The U.S. dollar remains pivotal in global trade and capital flows, underscoring its critical role in international finance.

President Trump's departure from established U.S. policies has led European allies to reassess their reliance on the dollar in times of financial distress. Despite reassurances from the U.S. Federal Reserve on dollar availability, Trump's policies have spurred European regulators to scrutinize their dependence on the U.S. financial framework.

The Prudential Regulation Authority of the Bank of England has individually reached out to some banks to understand their dollar funding strategies and assess their exposure. Recent stress tests were conducted on British banks, including scenarios where dollar swap markets might collapse, to prepare for a potential global dollar funding crisis, sources revealed.

(With inputs from agencies.)