* Dollar loses ground, euro rises
* Investors brace for volatility after polls close
* Analyst warn of election risks
* U.S. election results to filter in through Wednesday Asia
trade
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Julien Ponthus
LONDON, Nov 3 (Reuters) - Foreign exchange markets in Europe
tilted on Tuesday towards pricing a victory for U.S. Democratic
candidate Joe Biden against President Donald Trump despite
warnings that possible post-election disputes could unleash
weeks of dollar volatility.
The dollar was down 0.4% against a basket of currencies
=USD at 93.656 after hitting a month-high on Monday.
Analysts believe a Biden win would weaken the dollar as the
former vice-president is expected to spend big on stimulus and
to take a freer approach to trade, boosting other currencies at
the dollar's expense.
They cautioned, however, that uncertainty was very high
about the election outcome and that taking positions might prove
premature.
The euro EUR= extended gains and rose 0.49% against the
dollar to $1.1645 while sterling GBP= also went up 0.56% to
just below $1.30.
Meanwhile, European stock markets were also making strong
gains while euro zone government yields rose, another sign
investors were gradually switching from a cautious mood and
getting ready to bet on a clear victory for the Democratic
candidate.
"I'm more nervous than European markets are today," said
Berenberg chief economist Holger Schmieding, warning some
investors may be jumping the gun on the issue, particularly if
no clear winner emerged swiftly from the polls.
Republican Trump, who is trailing Biden in national opinion
polls, has criticised mail-in ballots and suggested he would
deploy lawyers if states are still counting votes after Election
Day on Tuesday.
Overnight gauges of volatility for major currency pairs
jumped to multi-month highs ahead of the outcome of the
election.
Euro/dollar implied volatility EURONO=FN surged to 19%,
its highest level since the depths of the market mayhem in
March, compared with less than 7% on Monday. Other indicators
like dollar/yen volatility also surged.
Investors had taken a more cautious approach as the election
neared. Rather than outright bets on a particular outcome, many
traders have flocked to the safety of dollars so that they are
well positioned to take advantage of volatility when results
arrive.
"Those who haven't hedged yet, but who would feel the pain
in case of strong moves, should hedge themselves as soon as
possible, as it is getting increasingly expensive", Commerzbank
strategist Antje Praefcke wrote to her clients in a note.
"There is only one thing we can do: fasten seatbelts, put
the helmets on and wait what happens in EUR-USD over the coming
days," she said, adding that: "Even riots in the U.S. cannot be
excluded, which may cause the market to sell the dollar."
It is not unusual in the United States for states to take
several days or even weeks to count their votes, and a record
surge in mail ballots as a result of the COVID-19 pandemic could
draw out the process further this year.
"Under no scenario will Donald Trump be declared a victor on
election night," Biden campaign manager Jennifer O'Malley Dillon
told reporters.
Among other currencies making gains against the dollar, the
Aussie AUD=D3 jumped 0.87% higher after an initial dip which
followed the Reserve Bank of Australia lowering its policy
interest rate by 15 basis points to 0.1% and announcing a
bond-buying programme. The safe-harbour yen JPY= was also slightly higher, up
0.10% at 104.67 per dollar.
========================================================
Currency bid prices at 10:29AM (1029 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Euro/Dollar EUR=EBS $1.1696 $1.1638 +0.50% +4.33% +1.1698 +1.1625
Dollar/Yen JPY=D3 104.6700 104.8100 -0.10% -3.61% +104.8100 +104.4850
Euro/Yen EURJPY= 122.41 121.93 +0.39% +0.38% +122.4700 +121.8300
Dollar/Swiss CHF=EBS 0.9159 0.9194 -0.38% -5.34% +0.9191 +0.9155
Sterling/Dollar GBP=D3 1.2989 1.2917 +0.57% -2.05% +1.2995 +1.2911
Dollar/Canadian CAD=D3 1.3147 1.3229 -0.56% +1.17% +1.3234 +1.3138
Aussie/Dollar AUD=D3 0.7119 0.7057 +0.89% +1.48% +0.7132 +0.7028
NZ NZD=D3 0.6673 0.6634 +0.59% -0.82% +0.6683 +0.6622
Dollar/Dollar
All spots FX=
Tokyo spots AFX=
Europe spots EFX=
Volatilities FXVOL=
Tokyo Forex market info from BOJ TKYFX
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Reuters Poll: U.S. dollar outlook https://tmsnrt.rs/2TPhKjO
Overnight FX vol surges https://tmsnrt.rs/385xfww
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