FOREX-Euro, yen implied volatility highest since April as traders prep for US election

* Dollar index rises to 1-month high
* Sterling falls to 2-week low
* Australian dollar falls to 3-month low
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Olga Cotaga
LONDON, Nov 2 (Reuters) - One-week implied volatility
gauging levels in the euro and the Japanese yen rose to their
highest since beginning of April, reflecting traders' angst
ahead of the U.S. election on Tuesday.
The U.S. dollar rose on Monday as investors prepared for the
presidential election, while a surge in global coronavirus cases
continued to weigh on sentiment. The greenback held onto gains
after posting its largest weekly percentage rise since late
September in the previous trading session.
"Volatility is rising because liquidity for hedges around
the election is very thin, everyone's the same way, there's no
one selling this stuff thinking everything's great," said Jordan
Rochester, forex analyst at Nomura, adding that market
participants are broadly hedging for a downside in the euro and
a rise in the U.S. dollar.
Democratic challenger Joe Biden leads in national opinion
polls though the race is seen as close in enough battleground
states that President Donald Trump could achieve the 270 votes
needed to win in the state-by-state Electoral College that
determines the overall victor. "It's never clear whether the last minute swinging polls
actually is a true reflection of the change in the race," said
Rochester.
He noted that either way, the result is going to be a shock
for the currency markets. If Trump wins, it will be a surprise
because investors are expecting Biden to win. But if Trump
loses, it will be a jolt as well for traders in the derivatives
market, who will see short euro hedges being wound down.
Rochester said a 1% or 2% swing in euro/dollar in either
direction would be expected on Wednesday, the day of the
election results.
The euro last fetched $1.1627 EUR=EBS , down 0.2% on the
day. The dollar rose 0.3% versus the Japanese yen to 104.91
JPY=EBS .
One-week implied volatility gauges for the euro EUR1WO=R
and the yen JPY1WO=R were both at above 11%, their highest
levels since beginning of April.
The dollar index, which tracks the greenback against a
basket of major currencies, rose to a one-month high of 94.28
=USD and was last up 0.2% on the day.
Meanwhile, the novel coronavirus continues to ravage
already-battered economies.
The British pound inched lower on coronavirus worries, after
Prime Minister Boris Johnson announced over the weekend a
one-month lockdown across England. Sterling fell to its weakest in 2-1/2-weeks at $1.2863
GBP=D3 , down 0.7% on the say. It was also down by 0.5% against
the euro at 90.35 pence EURGBP=D3 .
In Europe, new COVID-19 cases have doubled in five weeks, a
Reuters tally showed, with total infections surpassing 10
million. The United States posted nearly 87,000 cases on Saturday and
record hospitalisations in Midwestern states. Elsewhere, the Australian dollar - a gauge of market
participants' risk appetite - fell to a three-month low of
0.6990 AUD=D3 and was last trading down 0.4% on the day.

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