Silver prices (XAG/USD) fell sharply from the $30.00 psychological resistance during Wednesday’s European session, as the US Dollar (USD) staged a mild recovery after hitting fresh year-to-date lows. The USD’s rebound made silver more expensive for investors, contributing to the precious metal’s decline.
The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, recovered slightly to around 100.85 from a low of 100.50. Meanwhile, the yield on the 10-year US Treasury note dropped to approximately 3.82%. Historically, a strengthening USD tends to weigh on silver prices, as it increases the cost for non-US investors.
Uncertainty Ahead of Key US Inflation Data
The modest recovery in the USD is likely driven by uncertainty among market participants ahead of the release of the US core Personal Consumption Expenditure (PCE) inflation data for July, set to be published on Friday. The core PCE price index, the Federal Reserve’s preferred inflation gauge, is crucial for shaping market expectations regarding the Fed‘s upcoming monetary policy decisions, particularly the potential size of interest rate cuts anticipated at the September meeting.
Economists forecast that annual core PCE inflation could have accelerated to 2.7% in July from 2.6% in June, with month-on-month inflation increasing steadily by 0.2%. These figures will likely influence the Fed’s decision on whether to implement a small or significant rate cut, as traders remain divided on the expected size of the cut.
Market Implications
The near-term outlook for silver remains tied to the trajectory of the US Dollar and the Federal Reserve’s interest rate decisions. If the core PCE data shows stronger-than-expected inflation, it could further support the USD, potentially leading to more downside pressure on silver. Conversely, weaker inflation data might renew expectations of a more aggressive rate cut, which could offer some support to silver prices. As the market awaits these key economic indicators, silver prices are likely to remain volatile.
