The U.S. dollar eased on Tuesday as traders prepared for potential market swings amid a tight U.S. presidential election. Options volatility surged, particularly for the euro and Mexican peso, after recent polls showed Democrat Kamala Harris with a slight lead in traditionally Republican-leaning states, reducing confidence in a Republican victory.
Volatility Spikes as Election Day Nears
Market hedging spiked as investors sought protection against significant price movements in currencies sensitive to U.S. trade policy. Euro and peso volatility reached levels not seen since the Brexit referendum in 2016, with euro overnight volatility hitting its highest since November 2016.
Traders are anticipating rapid currency fluctuations as election results emerge, especially given the tight race. Commonwealth Bank of Australia strategist Carol Kong noted, “Markets are now positioned for a Harris win,” with the dollar expected to modestly decline if Harris wins and rise substantially if former President Trump is victorious.
Compounding Uncertainty with the Fed Rate Decision
Adding to market suspense, the Federal Reserve is set to meet on Thursday, with a quarter-point rate cut anticipated. Investors will look for any indication that the Fed may pause in December, especially following weaker-than-expected job growth in October. Other central banks, including the Bank of England and Norway’s central bank, will also meet this week, adding layers of global economic uncertainty.
Currency Movements and Bitcoin’s Rise
Amid this anticipation, the euro rose 0.15% to $1.08928, the pound gained 0.2% to $1.2984, and the yen held steady at 152.235 against the dollar. Meanwhile, Bitcoin advanced 2.2% to $68,542, recovering from a recent dip as investors anticipated potential favorable crypto policies under a Trump victory.
The Australian dollar also gained ground, adding 0.21% to $0.6600 following hawkish statements from RBA Governor Michele Bullock, who hinted at inflationary risks and a possible need for continued restrictive policy.
