The United States dollar index (DXY) braked its slump in Asian session trading on Tuesday (March 21) in the range of 103.40s. Trading is relatively quiet with respect to holidays in Japan. 

Meanwhile, market participants are waiting for the FOMC (Federal Open Market Committee) meeting on March 21-22, 2023. It is where the Fed officials will discuss interest rate decisions along with the latest economic projections.

CME FedWatch data shows that market participants are now pricing in a 75% chance of a 25 basis point Fed rate hike this week. However, there is also a 25% chance that the Fed option does not change interest rates at all. 

Market expectations for the Federal Reserve‘s terminal rate also slumped. The projection had reached a peak of 5.50% after the testimony of the Fed Chairman some time ago.

Two Scenarios Are Remaining 

However, now it is only around 4.80%. Given that the Fed's interest rate is currently in the range of 4.50-4.75%, terminal expectations around 4.80% hint that only two scenarios remain now.

The first scenario is more hawkish if it is seen from such actions. It is when the Fed raises interest rates by 25 bps this week and then does not raise again in the coming months. 

The second scenario is a more dovish scenario, the Fed suspends the rate hike starting this week. The volatility in interest rates and the broader asset market lately has been extraordinary.

It was said by John Velis, a macro and FX strategist at BNY Mellon. One consequence was a substantial recount regarding future interest rate expectations.

Market Sentiments are Still Fragile 

Uncertainty prevented the US dollar rate from rising or falling significantly before the FOMC announced its decision. Market sentiment in general is also still relatively fragile.

It is especially amidst the global banking crisis, so many traders remain extra cautious for that. It seems that they will prepare some further actions to face all possibilities.

Following news of the collapse of Silicon Valley Bank and UBS's acquisition of Credit Suisse, market participants continue to question which other banks will fall. 

Fortunately, the assertiveness of major central banks has so far dampened market panic. Markets are still jittery, but the nimble response of policymakers to evolving banking sector risks is encouraging.

Gold Price Has a Possibility to Strengthen 

The opinion above was said by Alvin Tan, a head of Asia FX strategy at RBC Capital Markets. It seems that his opinion was agreed by other analysts in the forex market. 

Elsewhere, Gold prices slipped below $1980 per troy ounce as fears of a banking crisis eased. That is especially after UBS reportedly acquired Credit Suisse and a number of major central banks coordinated to increase USD liquidity. 

Looking ahead, market participants' focus will be on the Federal Reserve's latest monetary policy this week. that is expected to raise interest rates more moderately or around 25 basis points.

That was as the upward trend in inflation eases and concerns about banking turmoil. On a weekly basis, gold prices jumped about 6.5 percent last week after global banking turmoil.

WTI Crude Oil Price Fell

The Turmoil was began with the collapse of Silicon Valley Bank in the U.S. stoked concerns about a weakening world economy and boosted demand for safe-haven assets.

Elsewhere, WTI crude oil prices fell to around $67 per barrel as concerns continued over banking turmoil, recession and high oil supplies from Russia. 

In addition, the decline in oil prices also comes ahead of the Federal Reserve's latest monetary policy release this week. It is predicted to raise the interest rates by 25 basis points.

Meanwhile, Goldman Sachs lowered its Brent crude oil price forecast for the next 12 months from $100 to $94. It was citing weakening fundamentals, falling demand, and rising oil supply from non-OPEC countries.