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Silver Price Analysis: XAG/USD drops below $31.00 on USD rally

  • Silver is trading in negative territory around $30.95 in early European trading on Monday, down 0.95% on the day.
  • The U.S. economy added fewer jobs in June and the unemployment rate rose to its highest level since late 2021.
  • The Fed’s hawkish stance or higher-than-expected CPI inflation data could weigh on the white metal.

Silver (XAG/USD) price retreats to $30.95 during the early European session on Monday. The white metal is falling on the back of renewed demand for the US Dollar (USD) and higher US bond yields. However, the precious metal’s gains could be limited by rising expectations of rate cuts by the US Federal Reserve (Fed) this year.

The US jobs report on Friday showed that employers added fewer jobs in June and the unemployment rate rose to its highest level since late 2021, according to the US Bureau of Labor Statistics (BLS). Nonfarm Payrolls (NFP) in the United States recorded 206,000 job additions in June. The previous month saw a sharp downward revision to 218,000 from the initial reading of 272,000. Meanwhile, the unemployment rate rose to 4.1% in June from 4% in May.

The downward revision to NFP and a further rise in the unemployment rate suggested that the strength in labor market conditions has weakened further, leading to the expectation of Fed rate cuts in the third quarter. This, in turn, weighs on the US Dollar (USD) and creates a tailwind for the precious metal. A lower interest rate generally drives up the price of Silver as it reduces the opportunity cost of holding non-yielding assets. Investors are currently pricing in a nearly 77% chance of a Fed rate cut in September, up from 70% before the US jobs report, according to the CME FedWatch tool.

Investors will be looking to Fed Chair Jerome Powell’s testimony before the Senate Banking Committee on Tuesday, ahead of the US Consumer Price Index (CPI) inflation data for June, due on Thursday. The Fed’s hawkish stance and the higher-than-expected CPI inflation data could dampen speculation about rate cuts, boosting the dollar and putting some selling pressure on the silver price.

Source: Fx Street

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