Silver (XAG/USD) experienced a significant rally above the key resistance level of $31.00 during Thursday’s European session. This surge came as the US Dollar (USD) gave up its early gains and declined, following the Federal Reserve’s announcement of its first interest rate cut in over four years.
Historically, lower interest rates set by the Fed are favorable for non-yielding assets like silver, as they decrease the opportunity cost associated with holding such investments.
The US Dollar Index (DXY), which measures the dollar’s performance against six major currencies, fell to around 100.60 after the Fed implemented a 50-basis-point (bps) rate cut, lowering the federal funds rate to a range of 4.75%-5.00%. While a rate cut was widely expected, traders had mixed opinions on the magnitude of the reduction. The substantial cut indicates that the Fed is confident in moving price pressures back towards its 2% target.
Regarding future rate guidance, policymakers anticipate the federal funds rate will reach 4.4% by year-end, suggesting at least another 25 bps decline. In contrast, the CME FedWatch tool indicates expectations for a total of 75 bps in cuts during the remaining monetary policy meetings this year.
