Caution Prevails for Dollar Heading into U.S. Election

Caution prevailed on foreign exchange markets on Tuesday in the hours ahead of polls opening in the United States as investors braced for possible postelection disputes that could trigger a burst of volatility for the dollar.

Markets are singularly focused on the election result, but 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 havent 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 EURUSD 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.

In early morning European trading, the dollar was down 0.2 against a basket of currencies at 93.831 after hitting a monthhigh on Monday.

The euro rose 0.26 against the dollar to 1.1670 and sterling ticked up to just below 1.30.

The safeharbour yen was also slightly higher, up 0.14 at 104.72 yen per dollar.

Analysts said a Biden win could weaken the dollar as he is expected to spend big on stimulus and to take a freer approach to trade boosting other currencies at the dollars expense.

But with battleground states too close to call and…

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