The market is turning to Trump! Dollar bullish bets have surged

Hedge funds are increasing their bearish positions in currencies such as the Mexican peso as they speculate that Trump will win the US presidential election next month.

Traders said that US dollar call options are becoming more and more popular in the $300 billion currency options market, and if the US dollar rises compared to similar currencies threatened by tariffs, these positions will increase in value.

According to data from the US Depository Trust & Clearing Corporation (Depository Trust & Clearing Corporation), contract trading volume in currencies such as the Mexican peso reached the highest level this month on Tuesday, surpassing the day the much-publicized US non-farm payrolls data was released on October 4.

Saurabh Tandon (Saurabh Tandon), head of global foreign exchange options at Standard Chartered Bank in Singapore, said, “This phenomenon began last week when the chances of Trump winning began to shift in a favorable direction. The most popular strategies include shorting EURUSD and going long on USD/MXN.”

As the November 5 election date approaches, the jump in options trading is echoing the efforts of some of the world's largest companies to hedge against currency risk. Trump is gradually getting ahead of Democratic nominee Harris in the gaming market, putting pressure on investors to make game plans about what Trump's second presidential election means for various assets.

Just over a week ago, hedge funds had no clear position on this election vote. Republican presidential candidate Trump said on Tuesday that tariffs would “greatly” help prevent other countries' products from flooding the US. He has previously threatened full tariffs, including a 60% tariff on products imported from China and a 10% tariff on the rest of the world.

These views have led the market to think about what this could mean for currencies like the Mexican peso and the euro.

George Boubouras (George Boubouras), head of research at Melbourne's hedge fund K2 Asset Management, said: “Market interest in currency options has rebounded over the past week, but it hasn't peaked yet. This is the biggest election, and you need to hedge against it.”

Demand for options caused the dollar pair's implied volatility to soar in one month (an indicator that measures its expected future trend, covering the US election results).

Standard Chartered Bank's Tandon said that most options positions were held until the end of the year in the form of direct European options (outright vanillas) and digital options (digitals). European options refer to simple call options with no special features or observational dates, while digital options provide an opportunity for fixed payments when the underlying market price exceeds the exercise price (a predetermined limit).

The increase in the cost of these options may spur investors to focus on more currencies that may be affected in the coming days.

Tandon also recommended Australian dollar put options. If the Australian dollar weakens against the US dollar, the value of such options will increase.

“Options trading is likely to continue to soar,” said Shoki Omori, chief strategist at Tokyo Mizuho Securities. Considering that the US dollar is also a safe haven, betting on a stronger dollar is easy to adopt.”