LONDON: The dollar eased on Tuesday as traders trimmed positions ahead of the looming US presidential election, while options volatility rose after recent polls dented some market bets on a victory for Republican Donald Trump.

Democrat Kamala Harris also saw her odds improve on electoral gambling sites and had a slight lead on PredictIt overnight, although Polymarket continued to show Trump as the favourite.

In recent weeks, financial markets and some betting platforms have tipped heavily in favor of a win for Trump, whose tariff and immigration policies are seen by analysts as inflationary, leading to a rise in US Treasury yields and gains for the dollar.

The US currency took a hit on Monday after a weekend opinion poll showed Harris with a surprise lead in Iowa, a traditional Republican stronghold. Overall, the polls continue to show a close race.

Hours before the first overnight results came out, the greenback was mostly flat against a basket of currencies.

Traders were less bullish on the outlook for the next 24 hours and rushed to hedge against potentially huge price moves in currencies that are particularly sensitive to the election outcome and US trade policy, such as the euro and mexican peso

Volatility in overnight options rose to the highest level since 2016 for the euro and peso.

“The big story is that big spike we saw in overnight volume,” said Michael Brown, Pepperstone’s senior research strategist.

“Overnight flights in the euro are right now at their highest level since the Brexit referendum, which probably gives you an idea of ​​some of the moves the markets are preparing for the next 24 hours or so.”

According to LSEG data, euro overnight volume hit its highest level since November 2016, but on other platforms it rose to the highest since June 2016, when Britain voted to leave the European Union.

The implied volatility of options reflects traders’ demand to buy protection against wild price swings and this may not always reflect the action in the underlying market.

“Today it’s all just ‘wait and see.’ Nobody will have any conviction until we start getting the first overnight results and that’s when you’ll see the markets start to bounce,” Brown said.

The euro was up 0.17 percent at $1.08955, while the pound was up 0.2 percent at $1.2987 and the yen was broadly flat on the day at 152.275.

“We think the financial markets are now positioned for a Harris win,” said Carol Kong, a currency strategist at the Commonwealth Bank of Australia.

“So the USD may fall modestly by 1%-2% this week if Vice President Harris wins and may rise significantly if (former) President Trump wins,” she said. “Any delays and/or disputes over vote counting may also add to the currency’s volatility this week.”

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The winner may not be known for days after Tuesday’s vote, although Trump has already signaled that he will try to fight any defeat, as he did in 2020.

Bitcoin rose 2.7% to $68,893, having earlier touched a one-week low of $66,776.19. Trump is seen by analysts as adopting more cryptocurrency-friendly policies than Harris.

Further complicating the situation for traders this week is the Federal Reserve’s policy meeting on Thursday, where the US central bank is expected to cut interest rates by a quarter point. Markets will focus on any signs that the U.S. central bank may skip a rate cut in December after last week’s monthly report showed employers added far fewer jobs than economists expected in October, raising signs of question about the degree of softness in the labor market.

The Bank of England, Sweden’s Riksbank and Norway’s central bank all hold policy meetings on Thursday as well.

The Reserve Bank of Australia kept policy steady on Tuesday, as expected, and kept the wording in its statement that “policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range”.

RBA Governor Michele Bullock sounded a louder note at the press conference, saying she still believes there are upside risks to inflation.

The Australian dollar rose 0.58% to $0.6624, finding its footing after touching its weakest level since Aug. 8 last week at $0.6537.

(Additional reporting by Kevin Buckland in Tokyo; Editing by Shri Navaratnam, Kim Coghill and Emelia Sithole-Matarise)