GBPUSD rises after hot inflation fuels BoE rate hike bets. DAX falls on debt ceiling jitters, IFO business sentiment data is up next.

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GBP/USD rises after hot inflation fuels BoE rate hike bets

• CPI cools to 8.7% vs 8.2% forecast
• IMF warns of inflation remaining persistently high
• GBP/USD need to rise above 1.2515 to extend gains

GBP/USD is rising after you can inflation also than expected in April, raising pressure on the Bank of England hike rates again.

UK CPI cooled to 8.7% YoY, down from 10.1% in March. Expectations had been for inflation to cool 8.2%.

The surprisingly hot inflation was owing to a jump in mobile phone bills, alcohol, and tobacco in a sign that inflation is becoming increasingly embedded in the economy. Meanwhile, core inflation unexpectedly accelerated two 6.8% from 6.2%, its highest level since 1992. Services inflation has been very much on the BoE’s radar that is also looking sticky at 10%, but this is down from 12.8%.

The data comes after the International Monetary Fund warned that the UK was at risk of persistently high inflation. Pressure has ramped up on the BoE to hike rates again in June. Markets now see rates peaking at 5.45% in November up from 5.12% yesterday.

Looking ahead, BoE Governor Andrew Baily is due to speak later today.

The USD is trading lower versus its major peers as debt ceiling jitters rumble on, and the two sides are still without a deal.

FOMC minutes will be in focus later and could provide further guidance as to whether the Fed will hike rates again in June. Despite a series of hawkish Fed officials, the market is still pricing in an 83% probability of the Fed keeping rates on pause in June.

GBP/USD outlook – technical analysis

GBP/USD continues to trade in a tight range capped on the lower side by 1.2390, yesterday’s low and by the 20 sma on the upper side at 1.2515. The RSI is neutral, giving away few clues.

A breakout trade here could see buyers looking for a rise over 1.2515  to bring 1.26 the round number and the rising trendline resistance into focus.

Sellers could look for a break below 1.2390, for a deeper selloff to 100 sma at 1.2285.

DAX falls on debt ceiling jitters, IFO business sentiment data is up next

• US debt ceiling deal still not agreed
• German IFO business sentiment to fall to 93
• DAX tests 20 sma and rising trendline support

DAX is falling, tracking close on Wall Street as investors who remain nervous over the lack of progress in U.S. debt ceiling talks.

Two sides have failed to reach an agreement to lift the $31.4 trillion limit as the clock ticks towards the X-date at the beginning of June when the US  is expected to run out of money.

The closer towards the X-date, the more nervous the markets are likely to be and the less demand for riskier assets we are likely to see.

Attention will now turn towards German IFO business confidence survey which is expected to show that the business climate fell to 93 in May from 93.6.

The data comes after German PMI data yesterday showed that activity in the manufacturing sector contracted at a steeper pace of 42.9 in May from 44.5. Meanwhile the services sector expanded strongly at 57.8 up from 56.

ECB President Christine Lagarde is due to speak and could provide further clues over the ECB’s path for monetary policy.

Her comments come after Bundesbank chief Nagel said that the ECB needs several more rate hikes.

DAX outlook – technical analysis

After rising to an all time high of 16333 at the end of last week, the DAX has rebounded lower and is testing support just below 16000 the 20 sma, multi-month rising trendline and round number. A break below here opens the door to 15650 the 50 sma and the May low.

Should the 16000 support hold then buyers could rise back up towards 16333 and fresh all time highs.

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