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09.06.2023 08:01 AM
Greenback to lose global reserve currency status sooner rather than later

As demand for the greenback continues to decline on expectations of rate hikes by the Federal Reserve, former US Congressman Ron Paul said that the new Financial Responsibility Act, recently signed by President Joe Biden, would boost government spending, national debt, and the country's budget deficit. In this light, the dollar risks losing its reserve currency status sooner rather than later.

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Ron Paul believes that the Financial Responsibility Act (FRA) will have negative consequences for the United States and that President Joe Biden should not have signed it. Notably, this bill allowed the United States to avoid a default and prevented another crisis in the global economy.

With the FRA, the government will continue increasing the debt by trillions of dollars, which will be monetized by the Federal Reserve. "Of course, this default will be felt by the people in the form of an inflation tax. This inflation tax may be the worst of all taxes because it is both hidden and regressive. Politicians love to point the finger at greedy corporations, labor unions, and even consumers for increasing prices instead of taking responsibility for the legislation they pass that incentivizes the Federal Reserve to create more inflation," the former congressman warned.

The former politician is one of those few who genuinely criticize the current government, its handling of the economic situation in the United States, and the debt accumulation, financed by the central bank and distributed worldwide.

Mr. Paul also noted that defense is the third-largest item in the budget, adding that Biden's military budget is the biggest in the history of the United States and possibly in world history.

He believes that the status of the US dollar as a global reserve currency is the only reason Congress has increased such a whopping deficit without causing a serious economic crisis. In his opinion, growing government spending, debt, and deficit, as well as fiscal policy, jeopardize the dominance of the US dollar. This might lead to its further depreciation and even the loss of the global reserve currency status sooner rather than later.

As for the outlook for EUR/USD, to maintain control of the situation, the buyers should defend 1.0768 and reclaim 1.0800. The price may then head towards the level of 1.0830 and even climb to 1.0875. However, without strong fundamental statistics from the eurozone, it will be a quite difficult task. In case of a decline in EUR/USD value, I expect an increase in bullish activity around 1.0765. Otherwise, it would be wiser to open long positions from 1.0700 after the price reaches a low of 1.0730.

Speaking of the outlook for GBPUSD, demand for the pound remains. The pair may show growth after gaining control above 1.2560. Only a breakout through the mark may enable further recovery towards 1.2590, and even towards 1.2610. In case of a fall in value, the bears will attempt to take control of the situation below 1.2532. If they succeed, a breakout below this range will trigger a fall in the price of GBP/USD towards a low of 1.2500, with the target at 1.2470.

Jakub Novak,
Analytical expert of InstaForex
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