The dollar is near the extremes of the worlds most popular currencies. The dollar index is near the peaks of March 2020 and January 2017. Investors and traders have pushed the dollar to a vital turning point over the past six years, anticipating one of the most hawkish decisions in decades.

Todays FOMC decisions will determine whether we see the formation of a DXY triple top and the start of a dollar pullback or whether we see further momentum building with the benefit of dollar buyers.

The FOMC is expected to raise its key rate by 50 points the sharpest tightening since 2001 along with the announcement of the start of asset sales from the Feds balance sheet at 95bn per month.

Market participants are also laying down a near 100 chance of a 75point rate hike at the subsequent meeting in June, plus a 50point in July. Such steep rate hikes were last experienced by the US in the 1980s, battling doubledigit inflation.

The Feds extreme action is justified and necessary in terms of inflation and current employment data. It is also widely believed that the Fed has been late in tightening and will now need to tighten the screws even further to get the economy back on a sustainable trajectory.

If todays comments reinforce market expectations that the rate could exceed neutral by the end of the year, the dollar will gain the fundamentals for further strength. On the one hand, a strong dollar will work to reduce inflationary pressures. But on the other hand, it could cause an…