Analysis Underway Regarding Potential Decline in US Dollar's Influence by Bank of England
Rewritten Article:
The Bank of England's watchdog, the Prudential Regulation Authority (PRA), is mulling over the potential ramifications of the greenback's recent downturn followingPresident Trump's tariffs shaking up investors.
Sam Woods, chief of the PRA and Bank deputy governor, hinted that Trump's initiation of a global trade war had dented the dollar's once-secure status as a safe haven currency among regulators and investors.
He did not hesitate to disclose that the Bank was pondering the UK's financial systems' resilience in the face of a falling dollar and crucial US assets.
"The last month has added a wrinkle or two to the way the US is seen," Woods stated before the Treasury Select Committee on Tuesday.
"We're asking ourselves, 'What if there's a deeper dip in investors' appetite for dollar-backed assets, or US assets, or Treasuries, or something along those lines?'"
He admitted that the response was complex but reiterated, "That's exactly what we're working on."
In times of financial turmoil, the dollar is traditionally deemed a safe haven by investors. Yet, the onset of a full-blown trade war and President Trump's sporadic strikes at Federal Reserve Chairman Jerome Powell have weakened the US's economic prowess.
Since April 2, the dollar has plummeted, heading for a decline of approximately 7.7 percent, marking the largest two-month drop in 23 years. However, it has experienced a slight recovery after reports suggesting a softening of tariffs on China.
Treasury yields have also witnessed volatility over the course of April.
The ten-year Treasury yield spiked from 4.2 percent on April 2 to nearly 4.5 percent mid-April, only to retreat, while the S&P 500 looks set to continue its downward spiral after two straight months of losses.
The Bank of England itself safeguards substantial dollar reserves to maintain financial stability in the UK.
Woods opined that the UK's alliance with the US would remain harmonious in the near future but noted that recent tensions may have sparked warmer relationships among European counterparts.
"We've had robust relations with EU partners, but let me tell you, relationships are warming up considerably, and that's a positive change," he declared.
Woods also expressed eagerness for confirmation of Trump's picks for three key financial regulators in the US, including those who regulate energy and securities sectors.
"We've enjoyed exceptional cooperation with US partners for years, and I anticipate that would continue, but... none of the three key heads of US financial agencies have been appointed yet, and until they're confirmed, the outlook is still cloudy," he added.
Woods further expressed optimism about the US adhering to the Basel rules, which govern the international banking sector.
As of now, the Bank has not demanded daily liquidity reports from banks, a measure typically introduced during times of market chaos.
"Our strategy has been to step up monitoring of firms during these heated times. We haven't escalated it to its highest level," Woods clarified.
- The potential impacts on markets, particularly banking and finance, of the dollar's recent downturn following President Trump's tariffs remain a concern for the Bank of England's watchdog, the Prudential Regulation Authority (PRA).
- Sam Woods, the chief of the PRA and Bank deputy governor, suggested that the initiation of a global trade war by President Trump has dented the dollar's once-secure status as a safe haven currency among regulators and investors.
- The PRA is working on assessing the UK's financial systems' resilience in the face of a falling dollar and crucial US assets, such as Treasuries.
- Woods admitted that the response to these concerns is complex, but he reiterated that this is exactly what the Bank is working on.
- In times of financial turmoil, the dollar is traditionally deemed a safe haven by investors, but the onset of a full-blown trade war and President Trump's sporadic strikes at Federal Reserve Chairman Jerome Powell have weakened the US's economic prowess.
- Woods expressed optimism about the US adhering to the Basel rules, which govern the international banking sector, although he has not demanded daily liquidity reports from banks as a measure typically introduced during times of market chaos.
