Euro Surges Above 1.15 as US Real Yields Fall

The Euro-to-Dollar exchange rate has broken above 1.1500, pushing the EUR/USD pair to its highest level in months.

Danske Bank notes that this break is not due to strong European data, but rather a decline in US real yields following the Federal Reserve meeting.

The bank's recent USD-positive narrative has been challenged by the market reaction, which saw nominal US yields fall and medium and longer-term inflation expectations rise.

Danske still expects further US rate increases, which could restore support to US yields and lead to renewed Dollar strength in the medium term.

However, the immediate risk is a continued decline in US real rates, which would put pressure on the bank's short-Euro position.