Silver prices (XAG/USD) declined to around $58.10 per troy ounce during early European trading on Friday, reversing two days of gains as the market responded to increasingly hawkish signals from the US Federal Reserve [1]. The CME FedWatch tool indicated that markets are pricing in over a 65% chance of a Federal Reserve rate hike in September, reflecting expectations for tighter monetary policy [1].
Federal Reserve official Warsh delivered a press conference with a notably hawkish tone, as measured by a FXS Speechtracker score of 7/10 compared to a baseline of 6/10, emphasizing a firm commitment to the 2% inflation target. Warsh stated that 'inflation cannot be cured in 9 weeks' and that the Committee 'will not hesitate to act,' reinforcing the Fed's willingness to keep policy restrictive for longer. He also addressed a 'misimpression' about the Fed's tolerance for higher inflation, pledging to 'deliver the 2% target,' which typically supports the US Dollar through higher-for-longer rate expectations [1].
The FXS Fed Sentiment Index surged by 18.94 points to 147.58, indicating that Fed communication is being interpreted as materially more hawkish than neutral. This has reinforced upside risks for the Dollar and kept rate-sensitive assets, such as silver, under pressure due to the higher opportunity cost of holding non-yielding assets compared to dollar-denominated, interest-bearing alternatives like US Treasury bonds [1]. The US Dollar Index (DXY) held gains after two days of losses, trading around 100.20 at the time of writing [1].
Despite these headwinds, silver found some support earlier in the week after the Fed left interest rates unchanged, even as inflationary pressures persisted due to renewed hostilities in the Middle East. However, easing inflation concerns have emerged alongside cooling oil prices, attributed to positive diplomatic developments, including progress in US-Iran talks regarding the Strait of Hormuz and a historic deal announced by US President Donald Trump for the disarmament of Hamas and withdrawal of Israeli forces from Gaza, as confirmed by senior Hamas officials [1].
CONCLUSION
Silver prices have come under pressure due to a hawkish shift in Federal Reserve communication and rising expectations for a rate hike in September, which have strengthened the US Dollar and increased the opportunity cost of holding non-yielding assets. While some geopolitical developments have offered support, the overall market sentiment remains cautious as investors brace for potentially tighter US monetary policy.