Forex Today: Dollar extends correction ahead of key US data, Powell speech

Here is what you need to know on Tuesday, May 17:

The greenback weakened modestly against its rivals on Monday and the US Dollar Index closed the second straight trading day in negative territory. The dollar stays on the back foot early Tuesday amid improving market mood. Later in the day, the first-quarter Gross Domestic Product data from the euro area, April Retail Sales and Industrial Production figures from the US will be watched closely by market participants. During the American trading hours, FOMC Chairman Jerome Powell will speak at an event organized by the Wall Street Journal.

The city of Shanghai reported on Tuesday that it had achieved zero coronavirus infections across all districts. Nevertheless, officials are planning to start easing restrictions in a gradual way from May 21 with an aim to have the lockdown completely lifted by June 1. The Shanghai Composite Index is on track to close in positive territory and US stock index futures are up between 0.35% and 0.75%, reflecting the upbeat market sentiment.

EUR/USD took advantage of the dollar weakness and posted modest daily gains on Monday. The pair continues to edge higher in the European morning and was last seen trading near mid-1.0400s. European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau said on Monday that a euro that is too weak would go against the ECB's price stability objective.

GBP/USD staged a decisive rebound on Monday and broke above 1.2300. Earlier in the day, the data published by the UK's Office for National Statistics showed that the ILO Unemployment Rate declined to 3.7% from 3.8% in three months to March. Additionally, wage inflation, as measured by Average Earnings Including Bonus, jumped to 7% on a yearly basis, surpassing the market expectation of 5.4% by a wide margin.

Meanwhile, Bank of England Governor Andrew Bailey said on Monday that he was not at all happy about the inflation outlook, explaining that over 80% of the UK's inflation overshoot was due to energy and tradable goods.

AUD/USD gathered bullish momentum in the Asian session on Tuesday and broke above 0.7000. Minutes of the Reserve Bank of Australia's (RBA) monetary policy meeting revealed earlier in the day that policymakers considered three options, raising the cash rate by 15 basis points, 25 basis points or 40 basis points. "Members agreed that further increases in interest rates would likely be required to ensure that inflation in Australia returns to the target over time," the publication read.

USD/JPY is having a difficult time making a decisive move in either direction and fluctuates in a relatively tight range above 129.00. Bank of Japan Deputy Governor Masayoshi Amamiya reiterated on Tuesday that it was important for them to continue with the current powerful monetary easing to support the economic activity.

Gold tested $1,800 amid rising US Treasury bond yields on Monday but managed to reverse its direction with the broad-based dollar weakness. At the time of press, XAU/USD was posting modest daily gains near $1,830.

Bitcoin lost nearly 5% on Monday but stays relatively resilient near $30,000 early Tuesday. Ethereum reclaimed $2,000 on Tuesday after having erased 5.7% on the first trading day of the week.