Doubts Rise in Europe Over Fed's Dollar Backstop Amid U.S. Shifts

European central banking and supervisory officials are questioning the reliability of the U.S. Federal Reserve for dollar funding in stressful market conditions. Despite the Fed offering no signs of halting support, informal discussions reflect concerns over Trump's policies affecting trust in U.S. commitment.

In a significant development, some European central banking and supervisory officials are expressing concerns about the reliability of the U.S. Federal Reserve for providing dollar funding during financial market turmoil. This comes amid growing apprehensions over recent shifts in U.S. policies under President Donald Trump's administration, which have shaken European trust in the traditional alliance.

While sources close to the matter consider it improbable that the Fed would cease its crucial funding backstops, they have nevertheless engaged in informal discussions exploring possible scenarios. These talks, reported by Reuters for the first time, highlight potential issues that could arise from a perceived lack of U.S. commitment to European financial stability.

The Federal Reserve, known for its independence and crucial support to the European Central Bank during times of stress, remains a pivotal pillar of stability. Despite private discussions exploring alternatives, there is no immediate replacement for the Fed's role, according to European officials. The ECB's analysis continues to underline the criticality of sustaining access to the dollar funding lines, especially considering the wider implications for global markets and the U.S. economy.

(With inputs from agencies.)