A shift by the Federal Reserve away from its aggressive rate-hike campaign would reverse the direction of the dollar.

Barry Eichengreen wrote in the Financial Times that the dollar has strengthened to levels not seen since 2002 as the Fed has pushed interest rates higher at a faster rate than other central banks.

The dollar's status as a safe haven may be boosted by Russia's war on Ukraine, US-China tensions over Taiwan, and Iran's nuclear program.

The recent currency movements have been caused by central banks. The same will be true in the future.

With the Fed behind the curve on inflation, the market has priced in the expectation of more rate hikes already, meaning any future increases are unlikely to move the dollar higher.

The dollar is falling against a basket of other major currencies as central banks in other countries get more aggressive with rate hikes.

The risk of a US recession is rising rapidly while current dollar pricing is based on expectations that the Fed will continue to raise rates.

The US economy contracted for a second quarter in a row, according to government data.

Before the GDP data came out, Eichengreen wrote that the idea that inflation will remain in the high single digits and the Fed will be forced to continue its tightening cycle is silly.

Central bank watchers on Wall Street warned that the market is misinterpreting the Fed after the stock market surged on Wednesday.

Inflation is unlikely to come down quickly enough for the Fed to pivot, according to Renaissance Macro Research. Powell's remarks are not the words of a Fed chair who is changing their stance on monetary policy. Analysts at NatWest Markets think the fed funds rate could go up.

In Eichengreen's opinion, there isn't much evidence that inflation will be stubborn enough to require continued rate hikes.

The dollar will reverse direction if the economy and inflation weakens. He said that this is no longer a risk that can be dismissed.