Dollar Strength Driven by Rate Bets and Safe-Haven Flows

The EUR/USD pair continues to decline, with the euro falling to its lowest level in two weeks at 1.1575 on Wednesday, September 2.

This is not a rate-differential trade right now, as both central banks are about to hike 25 basis points within six days of each other.

The dollar's strength is being driven by two forces: rising bets that the Federal Reserve will hike interest rates and escalating U.S.-Iran hostilities, which have increased safe-haven demand for the dollar.

Forward pricing now implies 17 basis points of Fed tightening for the September 16 FOMC meeting, with a market treating a move as the base case rather than a risk.