Silver prices (XAG/USD) dropped to a near three-week low of $26.70 during Tuesday’s European session, facing significant selling pressure after breaking below the key support level of $27.00. The decline in the white metal is attributed to rising US Treasury yields and cautious sentiment ahead of the Federal Reserve’s monetary policy announcement on Wednesday.
The 10-year US Treasury yields rose to 4.63%, driven by expectations that the Fed will maintain a hawkish stance. Higher yields on interest-bearing assets increase the opportunity cost of holding non-yielding investments like silver.
According to the CME FedWatch tool, interest rates are expected to remain unchanged within the range of 5.25% to 5.50%. Investors are closely monitoring the Fed’s guidance on interest rates, as the central bank is anticipated to uphold higher interest rates until there is evidence that inflation will retreat to the 2% target.
Investor focus also centers on whether the Fed will maintain its projection of three rate cuts this year. Doubts surrounding the Fed’s rate-cut projections emerged due to persistent higher inflation in the United States during the first quarter.
The US Dollar Index (DXY), which measures the dollar’s strength against six major currencies, rebounded to 105.90. The improved appeal of the US dollar ahead of a data-heavy week contributed to the downward pressure on silver prices. Key economic data releases this week, including the ISM Manufacturing PMI and the Nonfarm Payrolls (NFP) report for April on Wednesday and Friday respectively, will continue to influence market sentiment and silver price movements. Investors remain attentive to these indicators for insights into the economic recovery and potential monetary policy shifts by the Federal Reserve.
