The dollar dropped sharply against major currencies after release of weaker-than-expected U.S. existing home sales data and also on speculation that the Fed will continue to keeps rates near recent low level. The U.S. currency dropped versus the Japanese yen for a third day to as low as 94.88.

Earlier, sterling dipped to 1.6209 in European morning after Bank of England’s Dale said that the central bank’s buying gilts from foreign investors can improve the economy through a weaker exchange-rate. However, subsequent dollar's broad-based selloff gave a boost to the U.K. currency and price rebounded sharply to 1.6474 in New York afternoon. On cross trading, short unwinding in EURGBP continues and price reached a session high of 0.8599 before retreat.

The single currency rallied strongly and appreciated as much as 1.70% to 1.4109, the most since May 29. EURJPY rebounded strongly for 2% to session high of 134.40 after early selloff to 131.41. Axel Weber from ECB said earlier in Munich that the Central Bank has already used up the extra space it had to cut interest rates after the 'dramatic worsening' in the economy and decline in inflation risk, meaning rates in the euro-zone can only edge higher instead of lower in the future.

High-yielding currencies like Australian dollar and Kiwi rebounded to 0.7980 and 0.6419 respectively. However, the Canadian dollar fell to as low as 1.1583 after the release of U.S. existing home sales (4.77M versus forecast number of 4.81M) which raised investors' concern that the Canadian housing market may be dragged by the U.S. market.

FOMC started its 2-day rates meeting on Tuesday, economists are widely expecting the Fed to keep its benchmark rate close to zero and continue its $300 billion program of Treasury purchases. The after-meeting statement will be another focus of the investors.

Economic data on Wednesday include : Import and export data and trade balance in Japan; current account in Eurozone; CBI distribution trade data in U.K.; Durable goods and New home sales in U.S.; FOMC rate decision will come out at 18:15GMT on Wednesday.