USD: Markets pricing a respectful level of volatility – ING

With an exceptionally close US election upon us, plus the outcome likely to deliver a binary impact on currency markets, the FX options market is trading at a respectful level of volatility.

US elections come too close for comfort

“Polls in the seven swing US states close around 03/0400 CET tomorrow morning and we would expect markets to be moving around that time. Given the run-up in the dollar in October, we think we need to see a Red Sweep for the dollar to push on much further. A Harris win would seem a benign outcome and prove a dollar negative – those three currencies: the euro, the Canadian and the Australian dollars could do well here.” 

“The more difficult outcome for the market would be Trump without the House of Representatives or a contested election. IMF analysis in its recent World Economic Outlook warned that the US economy could be 1% weaker than baseline in 2026 if Trump delivers on tariffs but could not offset it with tax cuts. For this reason, and given market positioning into the election, we think the dollar could come lower unless there is a Red Sweep.”

“Ahead of the election, today's US data calendar has ISM services for October. This is expected to soften a little. And were it not for the election, we believe this week's Fed meeting would also prove dollar negative too.”