A look at the day ahead in European and global markets from Tom Westbrook

Sterling and the euro seem to be losing steam as currency markets tuck themselves in for a nap. JP Morgan's G7 FX volatility index stands at a one-year low, with financial markets in holding patterns as they await developments in key areas of focus.

Frontlines in Ukraine remain frozen. U.S. debt ceiling talks are deadlocked.

Today's inflation data, due at 1230 GMT, could offer a jolt if the surprise factor is big enough. Economists polled by Reuters see core CPI steady at a monthly 0.4%.

Annual change in U.S. Consumer Price Index, https://www.reuters.com/graphics/INFLATION-AUTOMATED/US-ANNUAL-CHANGE-VS-CORE-5-YEARS-202303/mopakoradpa/chart_eikon.jpg

However, as Joe Capurso at the Commonwealth Bank of Australia notes, Cleveland Fed's 'nowcast' forecasts core CPI going up and if that happens, it could challenge the market's assumption that U.S. interest rate hikes are finished.

Indeed, CME's FedWatch tool shows futures imply better-than-even odds that the Fed cuts rates in September.

Beyond the inflation data, U.S. default risks and banking wobbles loom as the next likely focus. Investors are so far avoiding T-Bills that mature around the "X-date" when the U.S. government runs out of cash, expected to be early in June.

Most analysts and investors think that as in the past, an eleventh-hour resolution will be found. But nerves are starting to fray, especially since the assumption that the U.S. government pays its debt on time is the bedrock of much global market activity.

"While this time might not be different, people are thinking that the politics and individuals are certainly much more ideologically driven and dogmatic ... party rifts are deeper," said ING economist Rob Carnell.

"It's not inconceivable that this goes horribly wrong, whereas in previous occasions it sort of was inconceivable."

Key developments that could influence markets on Wednesday:

U.S. CPI data

(Reporting by Tom Westbrook; Editing by Edwina Gibbs)