The price of silver (XAG/USD) remains firm above the crucial $29.00 support level during Wednesday’s early European session. Persistent buying interest at this level is fueled by growing speculation that the Federal Reserve (Fed) will begin cutting interest rates starting in September.
Market Expectations for Fed Rate Cuts
According to the CME FedWatch tool, the likelihood of a rate cut in September has increased to 67%, up from 61.5%, following weaker-than-expected US Retail Sales growth in May. Additionally, the CME FedWatch tool indicates that markets are now anticipating two rate cuts this year, contrasting with the single rate cut forecasted by Fed policymakers in their latest projections.
Fed’s Cautious Stance
Despite market optimism, Fed officials continue to favor a more cautious approach, advocating for only one rate cut this year. They emphasize the need to see sustained declines in inflation to ensure that price pressures are on track to meet the 2% target.
Impact on Silver Prices and Bond Yields
The Fed’s hawkish narrative has led to a partial recovery in US bond yields, which in turn has weighed on silver prices. Higher yields on interest-bearing assets increase the opportunity cost of holding non-yielding assets like silver, reducing its appeal to investors.
Upcoming Economic Indicators
Investors are now shifting their focus to the preliminary S&P Global PMIs for June, set to be released on Friday. These indicators will provide further insights into the economic outlook and could significantly influence market expectations regarding future Fed policy decisions.
As the market continues to navigate through economic data and Fed communications, the trajectory of silver prices and bond yields will remain highly responsive to developments in US monetary policy and inflation trends.
