The Federal Open Market Committee (FOMC) decision to kick off its tapering phase this month brings a focus on US monetary policy that could help drive the dollar higher.

While the likes of the UK (3.1%), Australia (3%), eurozone (4.1%), and Canada (4.4%) undoubtedly have elevated inflation figures, it is the US that continues to lead the way on that front (6.2%).

While markets are widely expecting to see tapering complete in June 2022 and a rate rise in that same month, continued inflation pressures could bring a ramp up in that process.

With that in mind, traders will be keeping a close eye out for pricing pressures over the coming months. Meanwhile, this week sees the latest consumer price index (CPI) figures from the UK and Canada.

The dollar index hit a 16-month high last week, with the greenback building off the back of a double bottom formation completed in September. That double bottom came off the back of a decline into the key 87.93-89.71 support zone.

While we are now well into overbought territory, the stochastic continues to push higher with little sign of tightening between the stochastic and signal lines.

The daily chart highlights how price has started to fade somewhat after this latest surge, with the stochastic well into overbought territory.

This could bring a bearish phase if we see the stochastic break back below the 80 threshold. Whether we see that pullback remains to be seen.

Ultimately we do have a clear preference for further upside before long given the uptrend in place throughout the second half of 2021. As such, any near-term downside would be deemed as a precursor to another leg higher unless we break back below the October low of 93.23.