The EUR/USD pair continued its upward trajectory, breaching the 1.0800 mark on Tuesday, fueled by a weakened US Dollar struggling to find traction in the wake of normalized trading conditions following a prolonged weekend in the US.

As the US Dollar grapples with tepid demand, the Euro surged to a fresh three-week high of 1.083 during the mid-European session. The surge creates a serious challenge for EURUSD shorts that paved the way for Dollar recovery since the start of the year:

Speculative interest finds itself at an impasse as central banks adopt a cautious approach towards monetary policy adjustments, limiting opportunities for prolonged risk-off or risk-on movements. Both the European Central Bank and the Federal Reserve have opted to maintain their current stances amid divergent economic landscapes.

The ECB has halted tightening measures amidst escalating recessionary concerns, supported by recent macroeconomic data indicating a prolonged downturn within the Eurozone. Despite calls for further rate hikes, the ECB faces a delicate balancing act given the fragile state of the regional economy.

Conversely, the Fed's decision to maintain the status quo stems from apprehensions over the potential adverse effects of excessive tightening and policy lags of various lengths, which demand more time to be properly assessed. With the US economy demonstrating relative resilience compared to its European counterpart, the Fed enjoys greater leeway in assessing the efficacy of its policies without jeopardizing progress.

Both central banks' prudent approach has left speculative interest in a state of uncertainty, lacking clear direction for the next significant market catalyst. The backdrop of a robust US labor market and upticks in January's inflation figures only exacerbates the prevailing ambiguity.

Against this backdrop, Tuesday's macroeconomic calendar offered limited insight. EU construction output saw a modest uptick, further underscoring the region's tentative economic recovery.

Turning to technical analysis, the daily chart for the DXY instrument indicates that the major selling target (support line on the daily timeframe) has been achieved:

Elsewhere, GBP/USD witnessed upward momentum, touching the 1.2650 area amidst subdued trading in the Asian session. Renewed weakness in the US Dollar, coupled with declining US Treasury bond yields ahead of Treasury note auctions, bolstered the pair's ascent.

However, despite initial gains, GBP/USD struggled to maintain momentum during European trading hours, closing near the 1.2600 mark. The pair faced downward pressure early Tuesday, trading marginally below this level.

Market attention now turns to the testimony of Bank of England (BoE) officials before the UK Treasury Select Committee, where discussions around potential policy rate adjustments are anticipated. Notably, Goldman Sachs' revised forecast of a policy rate reduction in June, coupled with market positioning reflecting a significant probability of a 25 basis point cut, underscores growing expectations for monetary policy loosening by the BoE.