By Harry Robertson and Naomi Rovnick

LONDON (Reuters) - Investors globally are piling into the U.S. dollar and betting on rising volatility ahead of a crucial two weeks in which the United States and Japan elect leaders, three major central banks decide on interest rates and the new UK government presents its budget.

The U.S. currency hit a three-month high this week in response to a strong U.S. economy and potential win for Republican former president Donald Trump in the Nov. 5 election.

Meanwhile, gauges derived from financial contracts called options, which are used to hedge against swings in the market, show investors are anticipating a jump in currency and bond volatility over the next month.

Still, stocks have remained broadly calm on strong U.S. data and earnings, though the VIX index of expected equity market swings sits above its 2024 average, signaling possible turbulence ahead.

"We're going to have quite an incredible, volatile two weeks," said Ales Koutny, head of international rates at Vanguard, who said he had sold some assets in favour of cash.

"We're going to start getting some increased vol, and that’s only going to settle down the week after the (U.S.) election."

TRUMP TRADES

Trump is neck and neck with Democrat Vice President Kamala Harris in the polls. Yet investors are taking their cues from betting markets, where the odds have shifted in Trump's favour.

The dollar has rallied more than 3% so far in October as bond yields have climbed towards three-month highs, partly because markets are preparing for potentially higher U.S. tariffs flagged by Trump if he wins that could push up inflation and force the Federal Reserve to keep rates higher.

Trade worries have helped drive a gauge of expected volatility in the euro over the next month to its highest in 18 months.

"We've shifted the portfolio defensively," said James Athey, fixed income portfolio manager at Marlborough, adding that he expects the dollar to rise further and has reduced his exposure to U.S. government debt in favour of German bonds.

Investors wary of inflation and populism are rushing into gold, Bank of America said on Friday, while Citi data showed hedge funds were piling into the dollar.

Markets might be underestimating risks posed by geopolitics and impending elections, the International Monetary Fund warned this week.

US JUGGERNAUT

The bigger driver for the dollar, however, has been relentless U.S. economic strength. Stronger-than-expected jobs data, retail sales numbers and jobless claims figures have caused investors to dial back Federal Reserve rate cut bets.