Getting Kinky
Despite the volume of noise that has so often accompanied them, American elections have historically had very little impact on currency markets. This year could be slightly different. Donald Trump appears committed to doubling down on the protectionist impulses that defined his first term, threatening to implement a 10-percent “universal baseline tariff” on imports from all US trading partners. We don’t expect traders to take directional positions this far from election day, but we do worry that market participants are failing to anticipate a rise in uncertainty. Volatility term structures – which measure the cost of insuring against big moves...