EUR/USD shakes off German political wobble – Danske Bank

Despite political noise out of Germany, EUR/USD held firm as markets eye the Fed for hints of dovishness and remain positioned for further USD weakness over the year, Danske Bank's FX analysts report.

Fed in focus as dovish risk looms

"Yesterday's session proved a poor one for the USD and despite the slight German policy scare on Merz not winning the first chancellor vote EUR/USD still ended the session solidly higher around the 13.50-level."

"Today focus will turn to the FOMC meeting this evening. Our base case entails little change to the USD upon announcement/the press conference although the balance of risk is probably skewed towards a slight dovish surprise and hence a weaker greenback."

"We see EUR/USD moving higher over the coming year with a 12M target of 1.22, and 10y UST yield declining to 4.20%. Upside risks to yields are more related to the term premium component, than risk-neutral rate expectation. Finally, we do not expect changes to the QT after the taper announcement in March."