In Monday’s North American session, the price of silver (XAG/USD) soared to nearly $28, propelled by a mix of geopolitical uncertainties and mounting speculation surrounding potential interest rate reductions by the Federal Reserve (Fed) starting from the September meeting.
Geopolitical tensions, particularly escalating conflicts between Iran and Israel in the Middle East, are anticipated to intensify following the assassination of a Hamas leader in Tehran by an Israeli air strike. This backdrop of heightened geopolitical risks has heightened the appeal of silver as a safe-haven asset, driving up demand for the white metal.
As market sentiment swirls with speculation over the Fed’s monetary policy decisions, expectations of rate cuts in September persist, albeit with a cloud of uncertainty surrounding the magnitude of the cuts. Data from the CME FedWatch tool reveals that traders now perceive a 46.5% probability of a 50 basis points (bps) rate reduction in September, a significant drop from the 85% probability recorded just a week ago.
The shifting expectations regarding the size of the potential rate cuts have had ripple effects in the financial markets. Notably, the US Dollar (USD) and bond yields have found support following the diminished prospects of a substantial rate reduction. The US Dollar Index (DXY), which benchmarks the Greenback against a basket of six major currencies, maintains stability above the 103.00 mark, while the 10-year US Treasury yields hover close to 3.95%.
Looking ahead, investors are gearing up for the release of the United States (US) Consumer Price Index (CPI) data for July, scheduled for publication on Wednesday. Projections suggest that both headline and core CPI, which excludes volatile food and energy prices, are anticipated to have moderated to 2.9% and 3.2%, respectively. These upcoming data releases are expected to provide further insights into the inflationary landscape and could potentially influence market dynamics in the days to come.
