By Amanda Cooper
LONDON (Reuters) – Currency traders rushed to hedge against enormous overnight price swings that could come after the 2024 U.S. election results are made public, sending option volatility for the euro and Mexican peso to the highest level since the 2016 vote r.
The euro and peso are seen as the most sensitive factors to the outcome of the election, which for weeks has been too close to a deal between Democratic Vice President Kamala Harris and former Republican Party President Donald Trump.
Harris and Trump remain virtually tied in polls, and the winner may not be known for several days after voting ends.
Analysts believe Trump’s policies on immigration, tax cuts and tariffs would put pressure on inflation and escalate bond yields and the dollar, while Harris is seen as a candidate to continue.
The euro’s overnight implied volatility, which reflects the need for protection against very short-term price movements, rose to 26.4%, the highest level since November 9, 2016, the day after this year’s US election, which Trump won, confounding previous polls.
Overnight, volatility in the Mexican peso rose above 87%, the highest since the 2016 vote 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.
“This fact will likely keep price action calm today as investors await results in the early morning hours tomorrow.”
Looking ahead, currency traders also did not expect any major cooling in volatility in the coming weeks.
The euro’s weekly implied volatility reached 13.06%, the highest since March 2023, when the collapse of Swiss bank Credit Suisse shook markets. Monthly volatility is also at its highest since March last year.
Weekly peso volatility is at 44%, the highest since the pandemic crisis in March 2020, and almost four times higher than at the time of the November 2020 US elections.
Volatility in the currencies of other key U.S. trading partners has also increased sharply. Trump has threatened to impose increasingly punitive tariffs on China and other countries if he wins.
Weekly offshore implied volatility on Tuesday was near its highest level since at least 2012, at 14.45%, up from about 2.5% a week ago, according to LSEG data.
On Tuesday, one-week Canadian dollar options hit a high of 8.5%, the highest since March 2023.
ING strategists said the fact that implied volatility has increased so much compared to realized volatility, particularly in the case of euro and Canadian dollar volatility, shows how nervous the market is.
“We think this makes sense and reflects the view that Trump 2.0 would not only punish China with tariffs, but would also introduce universal tariffs that would hit open economies like the eurozone and Canada hard,” said Chris Turner, a strategist at ING.
