Here's why the US dollar may be closer to a peak than markets think, even as inflation rages and the Fed remains hawkish

Even as inflation rages and the Federal Reserve remains cautious, the US dollar could be close to peaking.

Thanks to the Federal Reserve's rate hikes, the US dollar has risen this year. The central bank has raised its policy rate by 300 basis points so far this year as it scrambles to get a lid on inflation.

History shows that previous peaks coincide with US and global growth bottoming out and an easing of the Fed. The bank doesn't think the Fed will start cutting rates until 2024, which suggests a peak in the dollar isn't near.

Analysts said in a note on Thursday that examples of dollar peaks in the 1970s and 1980s may be more applicable to today.

The note said that it may make sense to overweight the experience of the mid-1970s and the mid-1980s. It may not be necessary to see the Fed easing substantially or inflation at the bottom for the Dollar to peak; and that an earlier peak is possible once it is clear US rate hikes may be approaching a pause.

On Friday, investors got a taste of that when the San Francisco Fed President talked about slowing the pace of rate hikes.

The 10-year Treasury yield went down and the dollar went down against several other currencies.

Patrick Harker, president of the Philadelphia Fed, said on Thursday that the Fed would keep raising rates.

Some historical examples suggest that the dollar may peak next year.

We could be through the worst of Europe's winter recession, a new leadership at the BoJ may start to tighten policy, and China's zero covid policies may be on their side. We are not there yet.