While the main focus of the market is on the FOMC policy meeting this week, the latest statement of the President of the United States Joe Biden has shaken the market sentiment.
In an interview, President Biden said the US military would defend Taiwan in the event of an invasion by China, a statement seen to further increase tensions with Beijing.
In response to the comments, China's Foreign Ministry said it regretted and firmly opposed Biden's statement, saying Beijing has the right to take all necessary measures in relation to Taiwan.
In the European session, the dollar index which measures the strength of the greenback traded firmly at a 20-year high against its main rival at 110.00.
The greenback continues to be supported by market expectations for a bigger interest rate hike by the Federal Reserve (Fed) on Thursday, by 75 basis points.
Looking at European currency movements, the euro slipped back below parity after being pulled lower by a stronger US dollar.
Meanwhile, the pound remained hovering at a 37-year low, failing to find support to recover ahead of the Bank of England (BOE) policy meeting.
Turning to antipodean currencies, the Aussie and New Zealand dollars continued to trade lower around two-and-a-half-year lows amid risk-on market sentiment.
