The U.S. dollar is a major proxy for America itself — and it's probably in for a turbulent ride Tuesday.
For now, however, it's already leaning toward a White House win for Democrat Hillary Clinton.
Currency markets are already rocking as voting is underway, and they could get much more volatile before the day is over, based on the election outcome. Major banks have warned clients that the market could see extreme moves with even wider swings if Republican Donald Trump wins, according to Reuters.
The dollar index was higher after rallying Monday. "It's still lagging behind rates as I look at it now. Just as there was a bit of a relief rally in the dollar when Clinton was performing well in the polls, I think there could be a decent pop if in fact she wins," said Robert Sinche, global strategist at Amherst Pierpont Securities.
Already Tuesday, the Mexican peso was rising. It has moved in reverse correlation to poll numbers for Donald Trump, who has threatened to build a wall along Mexico's northern border and to end trade agreements between the two North American neighbors.
In late-morning trading, the peso moved higher, breaking a trend line at 18.50 and hitting a near two-month high, as traders leaned toward a Clinton victory. Other emerging market currencies followed suit, with the Brazilian real up nearly a percent, and the South African rand and Korean won moving higher.
Emerging markets are "just trashed if Trump wins, between Mexican peso directly and EM in general," said Sinche, who added that "it will be a mess, as they fear the things he's likely to do that could impact EM or Mexico directly or indirectly."
With the election close, foreign exchange is expected to lead, as the heartbeat of the financial markets and the lifeblood of all global commerce. If Clinton wins, analysts expect the markets to return to a normal mode, where the dollar would move higher, reacting to the prospect of a looming Federal Reserve rate hike.
"If they call Florida and Michigan for her, the dollar's going to have an uninterrupted rally," said Boris Schlossberg, managing director at BK Asset Management. "But if there's no call for Michigan and no calls for Florida by 10 p.m., we're going to have a volatile night."
"Everybody's at their desks. There's no quiet session in FX tonight. All the European desks are open. Everybody's manning their desks from 7 p.m.," he said.
According to Reuters, investment banks Citigroup, Barclays and Goldman Sachs all warned clients about the potential for volatility ahead of the election. Such a warning was last issued when Britain voted to leave the European Union in June. At the time, the pound rallied in anticipation of the vote going the other way.
"There's just three scenarios. If Clinton wins, a huge part of it is getting priced in. It's the anticlimactic trade. That's the conventional scenario — or Trump wins, or we have a contested election," said Schlossberg.
"Scenario two is Trump wins. All bets are off. Dollar/Swiss sells off. Dollar/yen goes down to 100. Both the Swiss National Bank and [Japanese] Prime Minister [Shinzo] Abe's spokesman said they would be watching the markets carefully," said Schlossberg. "Both of them understand there could be a rush out of the dollar if Trump wins."
The final option is the "nightmare scenario" where the election is close enough that there will be a contest. "A contestable election with no clear outcome that could (create a) quagmire for the markets for months-worth of uncertainty. The dollar gets very badly hurt, but more importantly it becomes a very volatile market driven by every possible headline. I think it creates destruction in both assets and investor psychology," he said.
Marc Chandler, chief currency strategist at Brown Brothers Harriman, said he expects the election to end in victory for Clinton. He projects the dollar to rise and then continue moving higher, as the markets focus on the Fed and then on elections that are coming up in Europe.
"As long as there's no surprise, I think it's going to be anticlimactic. I am long euros against the Swiss franc — the anti-safe-haven trade. I think Trump's not going to win," he said.
Chandler said the Mexican peso has given the cleanest read on the election, and it started rising late last week.