The US dollar index or DXY stopped its slump in the 103.50s range in New York session trading tonight (14/March). Strong United States inflation data has halted the U.S. dollar slump arising from the banking crisis yesterday.

However, that has been unable to be the catalyst for a significant rally. The United States Consumer Price Index (CPI) report showed a 0.4% Month-over-Month increase in key data.

That was in February 2023, in line with expectations. But core inflation data increased by 0.5% (Month-over-Month), even though consensus only anticipates a 0.4% increase as in the previous period. 

An increase in the US inflation rate on a monthly basis resulted in an annual inflation rate that remained high and far from the Fed's target. The main annual inflation rate is now at 6.0%.

Data Puts the Fed on a Dilemma 

Furthermore, the core inflation is 5.5% (Year-over-Year). These data present a dilemma for the Federal Reserve. They are required to continue raising interest rates to control the pace of inflation.

However, the recent collapse of three banks exposed the magnitude of the dangers of overly aggressive monetary tightening. Market participants are currently considering about the Federal Reserve next step. 

People want to know whether the Fed in the upcoming FOMC meeting will raise interest rates again to stem inflation, or not change interest rates in order to dampen the threat of a broader banking crisis. 

The position of the US dollar index now signals a market vacillation that could develop into a sideways movement in the short term. Analysts expressed varying opinions for that. 

Major Inflation Increases by 0.4 Percent 

The Analysts from Goldman Sachs, Barclays and Wells Fargo signaled that the Fed will not raise interest rates. That is unless financial market conditions improve in the next week. 

Mean while, the Analysts from Bank of America and JP Morgan maintained their projections of a 25 bps rate hike. Consumer price inflation did not show much sign of cooling in the February CPI. 

Major inflation rose by 0.4%, with the core index up 0.5%. With more than a week to go until the next FOMC meeting, there is still a small chance of a 25 bps rate hike.

It is especially if the financial pressures ease. It was stated by Sarah House, a Senior Economist at Wells Fargo. Some other analysts chose to monitor the situation first. 

Market Participants Hope the Fed to be More Dovish

Meanwhile, analysts from Nomura expressed the most controversial opinion by predicting that the Fed would cut interest rates by 25 bps. Elsewhere, The US dollar index or DXY slumped further below the 104.00.

That was happened in Monday's trading (13/March), as the greenback was in a slump in all major currency pairs. Market participants expect the Federal Reserve to sign a more dovish action. 

It is especially in its next interest rate announcement. That was following the collapse of several financial institutions such as Silicon Valley Bank (SVB) and others at the end of last week.

The United States today shared several emergency policies. It is clear that they want to prevent the widespread impact of the fall of Silicon Valley, Signature, and Silvergate Bank in its financial system. 

Customers will be Able to Access their Fund Again

The customers of SVB and Signature Bank may be able to access their funds again as soon as possible. The Federal Reserve will also help increase funding where they choose to use the Bank Term Funding Program. 

The program gives the short-term loans on lighter terms. The aim is to add liquidity to banks and financial institutions in need. Those policies are made to easing the panic. 

However, the restlessness has not disappeared completely. It seems that people began to speculate that Federal Reserve may not decide to raise interest rates on a huge scale again. 

At the same time, the market will also highlight the release of US inflation data tomorrow. They want to find out how much urgency the follow-up "rate hike" is.