The dollar gained across the board in the European session, as investors geared up for the monthly FOMC meeting.

Despite a strong German IFO print, the euro dropped one big figure, a further indication that the recent risk rally is losing some steam. Equity markets were trading in the red across most of Europe, while EUR/USD traded in a range of 1.3052 to 1.2959. The January MPC minutes showed a 9-0 vote split for no change in rates and the asset purchase program. The minutes acknowledged that the most serious near-term risks have moderated, but the overall tone remains dovish. The Greece situation remains uncertain, with reports suggesting the Central Bank remains opposed to taking losses on its Greek debt holdings.

Germany continues to deliver strong data, and is likely to continue to do better than the eurozone average this year. News that Greek Finance Minister Venizelos expects to conclude a PSI deal in the next few days and has a green light from the Eurogroup to do so, did not help the euro much in the European session. The FOMC meeting was the game changer for EUR/USD in US trade. Risk assets rallied, and the euro broke through 1.31. With many traders and analysts having written off the euro this year, this might be a turning point for the single currency. The dollar weakened against the euro to the lowest level in a month. After powering through 1.31, the pair went on to print a high of 1.31208. Risk on is the message as free money encourages risk taking. This move has some traders now eyeing targets of around 1.35 for EUR/USD.