Shh, don't tell a soul
This morning's papers report a secret government document which reveals that the heir to the throne is privy to secret government documents. The implication is that he should be kept in the dark until he becomes head of state. (Psst! Did anyone mention the secret Federal Reserve rate increase?)
At seven o'clock this evening the US Federal Reserve will announce its first interest rate increase since 10 May 2006. That, at least, is what four fifths of financial market participants expect. And they expect it because the Fed chairperson, Janet Yellen, and her colleagues have led them to expect it. It is not impossible to imagine the committee holding back from pulling the trigger today but were it to do so it would destroy the credibility of any future guidance it might offer.
So, assuming that the rate increase is a done deal and that it will be followed - very slowly and gradually - by further hikes, what will be the impact on the dollar? The assumption is that it will strengthen but history provides some interesting food for thought.
The last great tightening
Between June 2004 and June 2006 the Federal Funds Rate rose from 2% to 5.25%. Over that period the dollar weakened by -2% against sterling and by -5% against the euro. Higher US interest rates are not a guarantee of a higher dollar.
However, the anticipation of higher interest rates has been a big factor in the dollar's advance over the last couple of years. Back in June 2013 the erstwhile Fed chairperson, Ben Bernanke, triggered what became known as the "taper tantrum" when he warned that quantitative easing would be coming to an end at some point. In October the following year the Fed made its last asset purchase and subsequently investors have been waiting for it to raise interest rates. Since June 2013 the dollar has strengthened by 3% against sterling and by 19% against the euro.
There is an old market aphorism that says traders should "buy the rumour, sell the fact" (alternatively, buy the mystery, sell the history). Since June last year investors have been buying the rumour of higher US interest rates quite aggressively, taking the dollar 11% higher against sterling and 21% higher against the euro. Will a 25-basis-point increase today spur them to buy more dollars? Not necessarily.
The rest of the news
No surprises were to be found among Tuesday's ecostats. The Swedish central bank did not alter its benchmark interest rate and inflation was slightly higher on the month in Britain and the States. Euroland inflation comes out today, along with the UK employment data.
The jobs numbers are expected to show UK wages rising more slowly in October. That could make life more difficult for the pound. There are various other economic statistics on the agenda as well.
But nobody cares about those: everyone's eyes are on the Fed. It could be the year's biggest anti-climax.