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Could the Bank of England Postpone Hiking Rates?

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May. 9 2018, Updated 11:25 a.m. ET

British pound remains under pressure

The British pound (FXB) depreciated 1.8% against the US dollar (UUP) in April, and has depreciated 1.9% so far in May. Weak economic data, dovish statements from the BOE (Bank of England), and a strong US dollar contributed to the slide of the British pound (GBB). Manufacturing and service data published last week was below expectations, leading to a further decline in the pound. A May rate hike, which was largely accepted by markets until the recent turn of events, now seems less probable. British equity markets (BWX) managed to close positively for a sixth consecutive week, aided by higher risk appetite around the globe. The FTSE 100 (EWU) rose 0.87% in the week ended May 4 and closed at 7,567.1.

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Speculators’ decreased bullish positions

According to the Commodity Futures Trading Commission’s May 1 Commitments of Traders report, speculators decreased their bullish positions by 10,993 contracts, from 37,305 to 26,372, the lowest figure in six weeks. This trend of reducing long positions began with the BOE’s dovish stance, which reduced the chance of a May rate hike.

Could the BOE postpone hiking rates?

Following weak 1Q18 GDP growth of 0.1% and weaker-than-expected economic data, the chances of the BOE hiking rates at its Friday meeting are slim. The committee is likely to postpone the rate hike until August, which would give it sufficient time to assess whether the recent slowdown was temporary. Industrial production and construction data, set to be released this week, is not likely to have a major impact on the British pound. In the last part of this series, we’ll discuss how the surging US dollar is pushing the Japanese yen lower.

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