Markets are standing by this morning for the Bank of England to take interest rates to a record low later today - and the nerves are showing.
Sterling is falling ahead of the announcement and the FTSE 100 has also eased back as traders assess just how much fuel the Bank of England will throw onto the ailing UK economy.
The pound is down 0.3 per cent against the dollar at $1.3284 and has also slipped 0.1 per cent to €1.1936. With futures markets assigning a 99 per cent chance of rates being chopped to 0.25 per cent, it was unclear how much movement there may be later in the day.
However, the action from Threadneedle Street is not just an either-or situation, so the currency could be noisy throughout the day. There are a number of unknowns which have traders on edge:
- Rates: Could the bank cut further than to 0.25 per cent?
- Rates: What about a smaller or larger cut - will the traditional 0.25 percentage point movements be scrapped?
- Quantitative easing: Will there be an extension, and how large will it be?
- Quantitative easing: Could any new asset-purchasing programme include corporate bonds?
- Forecasts: What is the Bank predicting for growth, employment and inflation?
- Banks: Will Carney throw a bone to the beleaguered banking sector in the shape of a new funding for lending scheme?
With so much potentially market-moving data, it is unlikely that everything will have finished by 12.01pm.
Traders at currency outlet FXTM said if the Bank does anything more than just cutting interest rates to 0.25 per cent, sterling could tumble, falling back below $1.30 and potentially hitting a fresh three-decade low.
Read more: Economists want more money
In the stock markets, the FTSE 100 was off by a modest 0.2 per cent, despite some decent earnings updates from insurers Aviva and RSA, ahead of the announcement. Typically, interest rate cuts and a weaker currency should buoy equities as it sends investors in search of higher returns and makes the UK index a little cheaper for international investors.
However, with the UK in unchartered territory, it is unclear whether that will play out.
"Stock and bond markets may well welcome a rate cut in the short-term," said AJ Bell's investment director Russ Mould. "[But] not every sector will welcome the move.
"While general retailers could benefit it lower rates stimulate more consumer spending, the weaker pound could increase purchasing costs. Raw materials are also likely to become more expensive for airlines."
Sam Alderson at the Centre for Economics and Business Research also said while a rate cut should traditionally support consumer spending as it reduces "interest payments on outstanding loans and mortgages ... set against a backdrop of falling consumer confidence and increasing inflationary pressures ... the extent to which any spare cash will provide a boost to retailers is limited."