Works. Tested with YubiKey 5C NFC FW-Version 5.43.

BZ#2107766 Yubikey 5C NFC cannot be read/used with gnupg2-2.3.7-1 due to upstream regression

Adding "Domains=local" to your systemd-resolved config should do the trick.

The cause of the test failure may be connected to systemd-resolved which dropped the "bad practice" of resolving ".local".

'This means that on networks where the ".local" domain is defined in a site-specific DNS server, explicit search or routing domains need to be configured to make lookups work within this DNS domain. Note that these days, it's generally recommended to avoid defining ".local" in a DNS server, as RFC6762 reserves this domain for exclusive MulticastDNS use.'