Silver (XAG/USD) depreciated for the third consecutive day, trading around $56.90 per troy ounce during Asian hours on Thursday, as market sentiment shifted sharply towards expectations of tighter monetary policy from the Federal Reserve [1]. This downward pressure on silver prices intensified after Fed Chairman Kevin Warsh reiterated the central bank's strict commitment to curbing inflation, emphasizing that the broader US economy remains stable [1].
The CME FedWatch tool reflected this hawkish turn, showing that markets are now pricing in an 83.1% probability of a rate hike by December [1]. These rising expectations for higher US interest rates have overshadowed recent deflationary trends, including the easing of energy-driven inflationary pressures following breakthroughs in US-Iran peace negotiations that brought oil prices back to pre-conflict levels [1]. However, as a yieldless asset, silver is particularly sensitive to interest rate increases, which diminishes its appeal compared to yield-bearing investments [1].
Looking ahead, investor attention is focused on the upcoming US Personal Consumption Expenditures (PCE) data release. Forecasts indicate that headline inflation will rise to 4.1% year-over-year in May, up from 3.8% in April, while the core PCE metric is projected to edge higher to 3.4% [1]. These inflation expectations further reinforce the case for a more hawkish Fed stance, adding to the headwinds facing silver prices.
Additionally, the US Dollar Index (DXY) remains near a one-year high of 101.80, making dollar-denominated silver more expensive for international buyers and further weighing on demand [1].
CONCLUSION
Silver prices have come under significant pressure due to rising expectations of a Federal Reserve rate hike and a strong US Dollar, despite easing energy-driven inflation. With markets closely watching upcoming US inflation data, the outlook for silver remains challenged in the near term.