“Volatility historically trends up in the months leading into an election. Kinks are now showing up on volatility surfaces around the election date across asset classes. Equity vol may outperform rates vol given yields are anchored and the dovish Fed.”The divergence is largely thanks to the dollar’s July plunge, a slide that traders are anticipating may accelerate heading into November’s vote. Bullishness on the euro has lifted options trades known as risk reversals across tenors to between 60 to 80 basis points, a phenomena that’s only happened three times since Bloomberg began compiling the data in 2006. In all cases, the euro rallied by more than 5% within a few months. “A fall in the USD can be congruent with an uptick in FX vols if we’re talking about a U.S.-specific crisis,” Rai wrote.