Silver prices (XAG/USD) experienced a sharp recovery on Thursday during the New York session, rebounding from a six-week low of $28.60 to near $29.20 per troy ounce. This uptick comes as the U.S. Dollar (USD) continues its correction, with investors exercising caution ahead of the release of the United States core Personal Consumption Expenditure Price Index (PCE) data for May, scheduled for Friday.
Market expectations for the PCE report suggest that core price pressures likely grew at a slower pace of 0.1% month-on-month in May, down from 0.2% in April. On an annual basis, core inflation is projected to have decelerated to 2.6%, compared to 2.8% in April.
Should the PCE data reveal a further decline in price pressures, it could bolster market expectations for early rate cuts by the Federal Reserve. Currently, financial markets anticipate the Fed might begin reducing interest rates as early as the September meeting, with further cuts potentially occurring in November or December. Conversely, a hotter-than-expected inflation reading would likely strengthen the USD and increase bond yields.
Despite market speculation, Fed officials continue to emphasize the need for maintaining current interest rates to achieve their 2% inflation target. On Wednesday, Fed Governor Michelle Bowman reaffirmed this stance, cautioning against premature rate cuts and indicating that more rate hikes could be necessary if disinflation stalls or reverses.
As the financial markets await the critical PCE data, silver prices are poised to react accordingly. A favorable inflation report could sustain the recent gains in silver, while a stronger-than-expected reading might apply downward pressure on the precious metal.
