Cautious optimism coupled with broad-based US dollar weakness emerged the main theme this Tuesday, as the Federal Reserve begins its two-day monetary policy review meeting later today, with the outcome likely to be announced on Wednesday.

The Yen was the top performer, with the USD/JPY pair down 0.25% to 108.25 levels amid falling Japanese stocks, Treasury yields and broad USD weakness. Meanwhile, GBP/USD caught a fresh selling wave and refreshed 5-month lows at 1.2514 on the reports that the UK Finance Minister Hammond is set to resign. EUR/USD, on the other hand, extended the corrective bounce towards 1.1250 ahead of Draghi speech.

There are plenty of event risks in the European session, including the macro data and the European Central Bank speak at Sintra conference. Markets look forward to the speeches by the ECB President Mario Draghi and Vice-President Luis De Guindos, scheduled at 08:00 GMT and 08:30 GMT respectively, for fresh hints on the monetary policy and economic outlook. At 09:00 GMT, a flurry of economic releases is slated for release that includes the German ZEW Survey, Eurozone Trade Balance, final CPI and ZEW survey. From the UK docket, there is nothing of note and hence, the uncertainty around the UK political climate will continue to drive the GBP moves.

In the NA session, we see the US Housing Starts and Building Permits data dropping in at 12:30 GMT. Later at 1400 GMT, the Bank of England Governor Mark Carney is due to speak alongside his ECB counterpart Draghi and ECB policymaker Lane. Towards NY close, the API weekly crude stockpiles data will be closely followed at 20:30 GMT for fresh direction on the US oil prices.

Both crude benchmarks were side-lined amid a lack of fresh catalysts and ahead of the US weekly crude supply reports and despite latest negative news concerning the US-Iran geopolitical tussle.

Gold prices traded mildly bid above $1,245 levels, having benefitted from geopolitical tensions, weaker US rates and pre-Fed caution trading. Although the Fed is not expected to change interest rates on its policy decision on Wednesday, analysts are widely expecting U.S. central bank chief Jerome Powell to present a more dovish outlook.