By Paul Hannon
Investors have reacted less dramatically than expected to threats of a trade war between the U.S. and Europe over the government of Greenland, but policymakers will need to keep a close eye on developments, Bank of England Gov. Andrew Bailey said.
Speaking to lawmakers on Tuesday, Bailey also said he and other central banks governors had taken the "unprecedented" step of publishing a statement in support of Federal Reserve Chair Jerome Powell because of the U.S. dollar's central role in the global financial system.
President Trump on Saturday said he would impose 10% tariffs on imports from several European countries from Feb. 1 in an effort to pressure Denmark to sell Greenland to the U.S., rising to 25% in June.
Many asset prices have fallen this week, but not as sharply as in early April, when Trump announced big increases in tariffs.
"Markets are less volatile than you might have expected," Bailey said. "It is the case that we worry how markets can react to these things. We have to remain very alert."
The central banker said investors have learned from previous episodes during which Trump has threatened to impose very large tariffs to achieve a goal, but ultimately settled for a compromise with lower duties.
"The markets see these announcements, but then they say, does it follow through to action?" Bailey said. "They're trying to make judgments all the time."
Bailey was among a group of central bank heads who issued a statement last week in support of Powell, who is facing a criminal investigation that he has characterized as an attempt to pressure the central bank to cut its key interest rate.
He acknowledged that it was "unprecedented" for central bankers to comment so publicly on the affairs of another country, but said the group had taken its decision because the fate of the U.S. central bank was a of great significance for the global economy.
"There is very substantial scope for spillovers," Bailey said. "The Fed is the central bank for the world's reserve currency."
Bailey also said that he regards Powell as a person "of the utmost integrity."
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
January 20, 2026 06:00 ET (11:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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