GBP/USD Rises to a 3-year High After Hotter Inflation

• UK CPI rose to 3.5% YoY, up from 2.6%
• USD falls for a 3rd day after Moody’s rating downgrade
• GBP/USD rises above 1.3445 to a 3-year high

GBP/USD is rising to a three-year high after hotter-than-expected UK inflation and amid further weakness in the US dollar .

UK inflation rose to 3.5% YOY in April from 2.6% in March, marking the highest level since January 2024 and the largest increase since 2022, when inflation surged. Arising utility bills and airfares contributed to the hot print.

Service sector inflation rose by 5.4% in April, well above expectations of 4.8%, lifted in part by persistently strong wage growth. The Bank of England has highlighted sticky service sector inflation as an obstacle to aggressively cutting interest rates.

The data suggests that a June rate cut is unlikely. This comes after Bank of England chief economist Huw Pill warned that he considered rates were being cut too quickly.

The market is pricing in just 35 basis points of rate cuts from the BOE between now and the end of the year

Meanwhile, the US dollar is falling for a third day following Moody’s downgrade of its credit rating. As President Trump urges Republicans to support his sweeping tax bill, which would considerably increase the US debt pile, markets are also wary of the US angling for a weaker dollar at the G7 finance ministers meeting in Canada.

No high-impact U.S. economic data is due today; attention will be on Fed speakers.

GBP/USD Forecast – Technical Analysis

After a failed breakdown below 1,32, GBP/USD rebounded higher within the rising channel, breaking above the 1.3445 April high to a 3 year peak of 1.3460 at the time of writing.

Should bullish momentum continue, buyers will look to extend gains towards 1.35 round number and up towards 1.3750 2022 high.

Support can be seen at 1,34, last week’s high and the 1.33 round number. Below here, the 1.325-1.32 zone comes into focus. A break below 1.3140 creates a lower low.

DAX Hovers Around Record Highs on ECB Rate Cut Expectations

• ECB rate cut expectations boost the DAX
• PPI fell -0.9% YoY in April
• DAX holds above 24k.

The DAX rose to a record high on Tuesday after German economic data supported ECB rate cut expectations. The DAX closed 0.42% higher yesterday at a closing record high of 24,036.

Yesterday, PPI data showed that PPI fell 0.9% YoY in April after 0.2% in March, pointing to a weakening demand. Falling PPI supports a more dovish stance from the ECB, which is expected to cut rates again in June.

Today, the German economic calendar is quiet. ECB chief economist Philip Lane is due to speak and could support dovish ECB expectations.

The DAX benefits from concerns surrounding U.S. debt, which have increased since Moody’s cut its US credit rating, and as investors weigh Trump’s looming tax cut bill.

DAX forecast – Technical Analysis

The DAX has extended its recovery from 18,800, rising above 24,000 to a fresh record high. The RSI is tipping into overbought territory, so a period of consolidation could be on the cards.

Continued bullish momentum could see buyers rise convincingly above 24k towards 24.5k as the next logical target.

Support can be seen at 23,477, the March high. A break below her opens the door to the 23,000 round number.

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