Dollar Declines Amid Pre-Election Jitters and Surging Volatility

The dollar weakened as traders recalibrated ahead of the U.S. presidential election, with rising options volatility driven by fluctuating prospects for Trump and Harris. Financial markets wary of major shifts see increased demand for hedging, while key policy meetings and forecasts add to the uncertainty.

On Tuesday, the dollar experienced a decline as traders adjusted positions ahead of what is anticipated to be a closely contested U.S. presidential election. Recent polls unsettled market assumptions about a Trump victory, and options volatility has surged as Kamala Harris shows slight leads on betting platforms.

Previously, financial markets favored Trump due to his inflationary economic policies, leading to dollar gains. The U.S. currency, however, weakened after Harris took a surprise lead in Iowa polls. With the election outcome imminent, traders hurried to secure hedge positions against potential currency swings.

The euro and Mexican peso options volatility reached levels not seen since 2016, highlighting traders' anxious sentiments. Analyst Michael Brown noted the unprecedented overnight spike, akin to Brexit referendum levels. As markets wait for election results, the dollar's outlook remains uncertain.

(With inputs from agencies.)