Dollar Strength Driven by Safe-Haven Flows and Geopolitical Tensions

The EUR/USD pair has been declining for two consecutive days, reaching its lowest level in two weeks at 1.1575 on Wednesday, September 2.

This decline is being driven by safe-haven flows into the dollar from an escalating Persian Gulf conflict and a terms-of-trade shock that affects net energy importers more than exporters.

The Dollar Index has been rising, reaching its highest level in over two weeks at 99.75 on Wednesday, with broad-based dollar strength driven by two forces: monetary policy and geopolitical tensions.

The Federal Reserve's potential rate hike on September 15-16 has lifted speculative demand for the dollar, with CME FedWatch odds of a 25-basis-point hike moving from 35% to 70% in just five sessions.