One in three chance

Rate anxiety
Researchers at the American Association for the Advancement of Science have discovered that coffee keeps you awake. Another team is said to be investigating the possibility that the US Federal Reserve might make a monetary policy announcement later today.

The media would have it that this evening's interest rate announcement by the Fed will be momentous, whatever the decision. If the Funds Rate goes up emerging-market currencies will crumble and share prices will plummet. If it remains close to zero for an 82nd month the prospect of an ongoing supply of cheap money will fuel another buying frenzy for equities and bonds.

Realistically, neither of those outcomes is likely. Investors know, whether or not they have personal experience of the phenomenon, that interest rates can go up as well as nowhere. If the Fed makes no move today all it will mean is that the brouhaha must be rescheduled for 28 October and, failing a rate increase then, for 16 December. 

Sterling higher
Investors were quietly pondering the possibility of the first US rate increase since June 2006 when the UK employment data were released yesterday. They seized upon the news that basic wages had risen at the fastest pace in six years and that unemployment was at a seven-year low. Sterling popped higher.

More importantly, the pound held onto most of its gains. It strengthened by an average of 0.6%, one and a half NZ cents, against the other dozen most actively-traded currencies. There were 1% gains against the US dollar and the euro and sterling went up by 1.5% against the day's biggest loser, the Japanese yen. 

Wednesday's other ecostats engendered nowhere near as much excitement. A downward revision to Euroland inflation, from 0.2% to 0.1%, had no lasting impact on the euro. US inflation was unchanged at 0.2%, in line with forecasts. The Loonie was unaffected by stronger Canadian manufacturing shipments. Weaker-than-expected figures for second quarter growth in New Zealand did send the Kiwi lower but it had recovered within six hours.

SNB, Fed, BoE
The Swiss National Bank and the Federal Reserve will both be deciding on monetary policy today. The Bank of England won't, but investors will be paying close attention to the UK retail sales data which they believe will influence its decisions in the future.

Ahead of London's opening a poll of economists found 70% of them predicting no change to US interest rates today. The main reason for that expectation is that, with inflation so low, the Fed does not need to tighten monetary policy yet. If it does not need to increase rates it may as well leave them where they are and avoid provoking unnecessary panic.

But many high-profile investors and bankers have publicly made that point recently, telling the Fed to leave well alone. It is not impossible to imagine Janet Yellen and her committee delivering a small increase today to demonstrate who is in charge of US monetary policy.