By Amanda Cooper
LONDON (Reuters) – Currency traders rushed to hedge against big price moves that could happen overnight as the results of the 2024 U.S. election filter through, driving up volatility in options for the euro and Mexican peso rose to its highest level since the 2016 elections.
The euro and peso are seen as the most sensitive to the outcome of the election, which has been too close for weeks to speak between Democratic Vice President Kamala Harris and Republican former President Donald Trump.
Harris and Trump remain nearly tied in opinion polls and the winner may not be known for days after voting ends.
Analysts believe Trump’s policies on immigration, tax cuts and tariffs would put upward pressure on inflation and push up bond yields and the dollar, while Harris is seen as the continuity candidate.
The euro’s implied volatility, which reflects demand for protection against very short-term price movements, rose to 26.4%, the highest level since November 9, 2016, a day after that year’s US elections that Trump won, somewhat earlier confused polls.
Overnight volatility of the Mexican peso rose above 87%, the highest level since 2016 voting day on November 8.
“Today’s election is closer than a coin toss, highlighting the uncertainty surrounding the outcome,” Monex Europe strategists said in a daily note.
“That fact will likely keep market price action light today, with traders awaiting results early tomorrow morning.”
Looking ahead, FX traders were also not expecting much of a cooling of volatility in the coming weeks.
One-week implied volatility for the euro reached 13.06%, the highest level since March 2023, when the collapse of Swiss bank Credit Suisse roiled markets. One-month volatility is also around the highest level since March last year.
The peso’s one-week volatility is at 44%, the highest level since the COVID crisis in March 2020, and almost four times what it was at the time of the November 2020 US election.
Volatility in the currencies of other major US trading partners has also increased sharply. Trump has threatened increasingly harsh tariffs on China and other countries if he wins.
One-week implied volatility in the offshore market on Tuesday was near the highest since at least 2012, according to LSEG data, at 14.45%, up from about 2.5% a week ago.
One-week Canadian dollar options topped 8.5% on Tuesday, the highest level since March 2023.
Strategists at ING say the fact that implied volatility has risen so much compared to realized volatility, especially in euro and Canadian dollar volatility, shows how nervous the market is.
“We think this makes sense and reflects the view that a Trump 2.0 would not only punish China with tariffs, but also pursue universal tariffs that would deeply hit open economies like the eurozone and Canada,” said ING strategist Chris Turner.
