After the European morning slump, the EUR/USD currency pair rose to 1.0700. The US dollar remains strong while investors await the February US inflation report.

Early Tuesday, the EUR/USD pair dipped below 1.0700 after rising on Monday. US dollar reaction to February inflation data later in the day may affect the pair.

US Treasury yields fell on Monday, hurting the USD and maintaining EUR/bullish USD trend. The pair fell from its month-high of 1.0750 as Wall Street’s main indexes rallied from their opening lows on expectations that the Silicon Valley Bank issue would not spread.

The US Dollar Index’s (DXY) minor recovery gains prevent the pair from recovering early Tuesday. The US Consumer Price Index (CPI) is predicted to dip from 6.4% in January to 6% in February. The Core CPI excludes food and energy and is forecast to remain at 0.4%.

According to the CME Group FedWatch Tool, the markets expect a 58% possibility of a 25-bps Fed rate hike at the upcoming FOMC meeting and a 42% chance of nothing. If the monthly core inflation number is lower than predicted, people may think the Fed will hold its policy rate the same in reaction to the SVB’s instability, which would harm the USD against its rivals.

The Fed may have to fight inflation if core CPI is above 0.5%. The dollar and EUR/USD would benefit.

Conclusion

SVB’s failure has also raised concerns about the ECB’s interest rate decision later this week. Bloomberg reported Monday that authorities might oppose the ECB’s 50-basis-point rate hike. On Tuesday, ECB policymaker Yannis Stournaras claimed the SVB collapse would not affect European banks. The Euro may be able to compete if more ECB policymakers say similar things during quiet periods.