Bank of England's Greene on Dollar Drop and Inflation Puzzle
(Reuters) - Bank of England interest rate-setter Megan Greene said on Saturday it was unclear what U.S. President Donald Trump's import tariffs would do to UK inflation with the unpredictable behaviour of the dollar adding to the puzzle.
Higher barriers to trade were likely to weigh on economic growth in countries in Europe, Greene said during a panel discussion at the Delphi Economic Forum conference in Greece.
"The implications for inflation, though, are somewhat ambiguous," she said, noting the possibility of Chinese exports being diverted away from the U.S. and towards Europe which could push down on prices.
But the most important thing to watch is what happens to currencies, Greene said.
"The key channel, really is exchange rates, and that's been really difficult because exchange rates haven't operated in the past week as the models would suggest," she said. "The dollar has fallen instead of appreciating as you would expect."
A stronger dollar would normally push up inflation in other countries, Greene said.
BoE deputy governors Clare Lombardelli and Sarah Breeden both said earlier this week that it was too early to say what the inflation implications from Trump's tariffs will be.
(Writing by William Schomberg; Editing by Susan Fenton)
