Silver prices (XAG/USD) extended their recovery to $27.20 during Monday’s European session, driven by concerns stemming from a sluggish United States labor market and Services PMI data, which have heightened expectations for Federal Reserve (Fed) interest rate cuts at the upcoming September meeting.
The US Nonfarm Payrolls (NFP) report for April revealed a disappointing addition of jobs compared to expectations, with the Unemployment Rate rising to 3.9% and wage growth showing a significant softening. These indicators suggest the potential consequences of the Fed’s earlier interest rate hikes.
Moreover, the Services PMI, representing a critical sector comprising two-thirds of the US economy, dropped below the 50.0 threshold to 49.4, marking its lowest reading since December 2022. This decline further bolstered expectations for Fed rate cuts later this year.
Despite the overall weak data, traders hesitated to advance their expectations for Fed rate cuts due to the sharp rise in the ISM Price Paid subindex to 59.4 from 53.4 in March. This subindex is a leading indicator of US inflation outlook, reflecting prices paid for business inputs.
The underwhelming US economic data has weighed on the US Dollar Index (DXY), which struggles to maintain ground above 105.00. Additionally, 10-year US Treasury yields experienced a notable decline to 4.47%, enhancing demand for non-yielding assets like silver, as the opportunity cost of holding interest-bearing assets rises.
The convergence of these factors underscores the current environment supporting silver prices, with investors closely monitoring economic indicators and Fed policy signals for potential impacts on precious metal markets in the near term.
