Silver Price Forecast: XAG/USD sinks from four-week highs after US CPI.

• Silver prices fell after August inflation figures were higher than estimated, cementing the case for a third straight Fed rate hike of 75 basis points.
• The US headline CPI unexpectedly rose 8.3% year-on-year, above estimates of 8.1%.
• The CME’s FedWatch tool has fully priced in a 75 basis point rate hike.

the price of silver falls from weekly highs near the $20.00 mark on elevated US inflation data released by the Labor Department, beating analyst estimates, with most expecting a drop that could deter inflation. US Fed to raise interest rates.

XAG/USD opened around the $19.70 area and rose towards its daily high of $19.94, before the US inflation release. However, once the headline crossed the news wires, the pair fell towards the daily low at $19.34 before settling around the current spot price. XAG/USD is trading at $19.52, below its opening price.

XAG/USD fell on an unexpected rise in US inflation.
Before the opening of Wall Street, the US Department of Labor published that August inflation in the US reached 8.3% year-on-year, lower than the 8.5% of the previous month. Although this is a positive figure, economists had expected a lower reading, driven by lower energy prices, as the price of WTI oil reached a high of $129.43 in March 2022.

Inflation, excluding volatile items such as food and energy, continued its upward trend, going from 5.9% year-on-year in July to 6.3%, mainly due to the increase in rental costs, which reinforces the arguments in favor of a big rate hike by the US Federal Reserve.

Elsewhere, the dollar index, a gauge of the greenback’s value against six pairs, is making up a lot of ground, after falling towards a daily low at 107,660, edging down almost 1% at 109,375, a headwind for the precious metal complex.

The yield on 10-year US Treasury bonds rose seven basis points to 3,431%, while the yield on 10-year US Treasury inflation-protected securities broke the 1% threshold for the first time since January 2019.

The US Federal Reserve entered its lockdown period until the September 21 monetary policy decision. Market participants have fully priced in a 75 basis point rate hike, according to CME’s FedWatch tools, which would see the Federal Funds Rate (FFR) hit the 3.25% threshold.

What must be considered

The US economic docket will include producer prices on Wednesday, followed by the New York Fed PMI, Philadelphia Fed PMI, initial jobless claims and retail sales on Thursday. On Friday, the University of Michigan (UoM) will release US Consumer Confidence ahead of next week’s FOMC monetary policy decision.

Key technical levels