XAG/USD Stays Strong at $29 Support Amid Rising Fed Rate-Cut Speculation After US CPI Data

Key Takeaways:

Silver price climbs above $29.00 as US bond yields weaken due to expectations of Fed rate cuts.
Probability of rate cuts in September rises to 71% according to CME FedWatch tool.
Silver price trades in a Falling Channel pattern, indicating a bearish trend.

Overview:

In the Friday American session, the Silver price (XAG/USD) holds steady around the key support level of $29.00. This increase is attributed to the weakening of US bond yields as the market speculates on potential interest rate cuts by the Federal Reserve starting from the September meeting. This scenario has reduced the opportunity cost of holding non-yielding assets like Silver due to decreased yields on interest-bearing assets.

With 10-year US Treasury yields dropping to approximately 4.20%, expectations of rate cuts have surged to 71% for September as per the CME FedWatch tool. This increase in market anticipation follows a decline in US consumer and producer inflation in May, primarily driven by soft gasoline prices. Fed policymakers have adjusted their rate cut projections, forecasting two cuts this year as opposed to the one indicated in their previous dot plot.

On the technical analysis front, Silver price is confined within a Falling Channel pattern, with pullbacks viewed as selling opportunities. The asset has dipped below the 200-period EMA, signaling a bearish trend. The RSI indicates consolidation between the range of 40.00-60.00.

Silver Technical Analysis Chart:

FAQs:

1. Why is the Silver price climbing above $29.00?

The Silver price is rising due to the weakening of US bond yields, fueled by expectations of Federal Reserve rate cuts starting in September.

2. What impact do lower US Treasury yields have on Silver prices?

Decreased yields on interest-bearing assets reduce the opportunity cost of holding non-yielding assets like Silver, making it a more attractive investment option.

3. How many rate cuts are expected by the Federal Reserve this year?

The CME FedWatch tool indicates that there may be two rate cuts this year, as opposed to the one cut projected by Fed policymakers in their latest dot plot.