The current position of the US dollar index indicates market uncertainty that could develop into a short-term sideways movement.

The US dollar index (DXY) has stopped declining around 103.50 in the New York trading session tonight (March 14). Strong US inflation data has halted the US dollar exchange rate decline from yesterday's US banking crisis but has not acted as a catalyst for a significant rally.

dxyDXY Daily chart via TradingView

The US Consumer Price Index (CPI) report showed a main data increase of 0.4% (month-over-month) in February 2023, in line with expectations. However, core inflation data increased by 0.5% (month-over-month), whereas the consensus only anticipated an increase of 0.4% as in the previous period.

The monthly inflation rate increase in the US resulted in a persistently high annual inflation rate that remains far from The Fed's target. The main annual inflation rate is 6.0%, while core inflation is 5.5% (year-over-year).

These data present a dilemma for the Federal Reserve. They must continue raising interest rates to control inflation, but the recent collapse of three banks revealed the danger of excessively aggressive monetary tightening.

Market participants are currently weighing whether the Federal Reserve will raise interest rates again to curb inflation in the upcoming FOMC meeting or leave rates unchanged to mitigate the threat of a wider banking crisis. The current position of the US Dollar Index indicates market uncertainty, which could result in short-term sideways movements.

Analysts have expressed different opinions. Analysts from Goldman Sachs, Barclays, and Wells Fargo signaled that The Fed is unlikely to raise interest rates unless market conditions improve in the next week. Analysts from Bank of America and JP Morgan maintain their projection of a 25 bps interest rate hike.

"Consumer price inflation did not show many signs of cooling in the February CPI. Headline inflation rose 0.4%, with the core index up 0.5%. With more than a week to go until the next FOMC meeting, a 25 bps rate hike is still a distinct possibility if financial stresses ease," says Sarah House, Senior Economist at Wells Fargo.

Some other analysts choose to monitor the situation first. Meanwhile, analysts from Nomura revealed the most controversial opinion by predicting that the Fed will cut interest rates by 25 bps.