Deutsche Bank analysts have raised concerns that if the U.S. Federal Reserve restricts dollar funding to its allies during periods of financial stress, it could accelerate the global trend of de-dollarization.

They further emphasize that withdrawing the Fed's swap lines may lead to significant financial instability, pushing the world even closer to abandoning the dollar.

While the independence of the Fed is recognized, analysts suggest that the U.S. administration can still exert indirect influence over its operations through strategic appointments and moral persuasion.

The article points out that European central banking officials are increasingly losing trust in the Fed, a sentiment that has been shaped by the isolationist policies of the previous Trump administration.

Jane Foley from Rabobank describes the recent changes in U.S.-European relations as a 'sea-change,' indicating a significant shift towards reduced reliance on the U.S. and its currency.

Historically, the Fed has played a crucial role in providing dollar funding to the European Central Bank and other major counterparts during market crises, which has helped stabilize the dollar's dominance in global trade and capital flows.

Foley also notes that Trump's trade and foreign policies, including threats of tariffs against countries seeking to de-dollarize, could ironically worsen the trend towards de-dollarization.

However, such financial stress resulting from these actions could negatively impact the U.S. financial system, potentially leading to a fire sale of U.S. assets.

Analysts George Saravelos and Oliver Harvey warn that withdrawing support during systemic financial stress would likely increase dollar funding costs and could trigger a sharp appreciation of the dollar.