David Bloom, currency chief at HSBC, said a “seismic change” is under way and may lead to a 20pc surge in the dollar over a 12-month span. The mega-rally of 1980 to 1985 as the Volcker Fed tightened the screws saw a 90pc rise before the leading powers intervened at the Plaza Accord to cap the rise.

“We are only at the early stages of a dollar bull run. The current rally is unlike any we have seen before. The greatest danger for markets and forecasters is that they fail to adjust their behaviour to fully reflect a very different world,” he said.

Mr Bloom said the stronger dollar buys time for other countries engaged in currency warfare to “steal inflation”, now a precious rarity that economies are fighting over. The great unknown is how long the US economy itself can withstand the deflationary impact of a stronger dollar. The rule of thumb is that each 10pc rise in the dollar cuts the inflation rate of 0.5pc a year later.

Hans Redeker, from Morgan Stanley, said the dollar rally is almost unstoppable at this stage given the roaring US recovery, and the stark contrast between a hawkish Fed and the prospect of monetary stimulus for years to come in Europe.

“We think this will be a four to five-year bull-market in the dollar. The whole exchange system is seeking a new equilibrium,” he said. “We think the euro will reach $1.12 to the dollar by next year and will be even weaker than the yen in the race to the bottom.”

David Fuller's view

The Dollar Index’s (historic & weekly 10-yr) strength will come as no surprise to subscribers as this service has been discussing the basing characteristics near 80 for months.  It is rapidly approaching previous resistance from the three peaks above 88 seen in 2008, 2009 and 2010, when the Fed helped to reverse those sharp rallies. 

The market may temporarily hesitate around those levels - the equivalent of waiting to see if lightening is going to strike in the same place once again.  However, the US economy is stronger today than it was in the 2008-2010 period, although we cannot say the same for the EU.  Therefore my guess is that following a brief pause, the Dollar Index (DXY) could easily move above the 88 to 90 region, not least as the euro has the biggest weighting.  It is likely that only the Fed can curb DXY strength, so in addition to monitoring the chart action, we should also watch out for complaints from US exporters, let alone any comments on dollar overextension from the US Central Bank.