Silver rallied above $ 26.00 following US inflation data.

• Silver spot prices have rallied back to around $ 26.00 in recent trading following mild US inflation data.
• The data appeared to have eased fears that the US economy will overheat and trigger a tightening response from the Fed.

Silver Spot Prices (XAG / USD) have seen recent trading upswing, rising from around the $ 25.75 area to current levels around the $ 26.00 level on the back of a softer-than-expected US consumer price inflation report for the month February. XAG / USD bulls are now considering a test of Tuesday’s highs at just over $ 26.10, which seems likely if the US dollar continues to decline; Keep in mind that spot silver has traded mainly against the USD on Wednesday and its recent recovery above $ 26.00 (from lows) at $ 25.50 coincides with the weakness in the dollar index (DXY) that it has seen it drop from session highs above 92.20 to current levels around 91.80. Currently, the precious metal is trading with gains of around 0.5% or just under 15 cents on the day.

US CPI Report and Market Reaction

Headline consumer price inflation (CPI) in the US in February was 1.7% year-on-year, according to the latest BLS report, in line with market expectations and an increase in the year-on-year inflation rate. January 1.4%. On a monthly basis, the CPI rose 0.4%, also in line with consensus market forecasts. However, according to the BLS report, the basic CPI was softer than expected, with a year-on-year rate of 1.3% (versus market expectations of 1.4%) and the month-on-month rate of 0.1% (versus market expectations). 0.2% market).

The increase in the overall CPI rate was driven by a 7% month-on-month increase in gasoline prices in February. Meanwhile, the basic CPI measure was weighed by weakness in the used vehicle, prescription drug and travel-sensitive sectors. Capital Economics finds continued underlying price weakness “difficult to square with the recent recovery in demand” and thinks “with high-frequency data showing restaurant dining and air travel now picking up rapidly, surely it is only a matter of time before prices in the most affected service sectors begin to rebound. ”The economic consultancy concludes that“ with the imminent fiscal stimulus set to boost demand, at a time when many sectors are already facing to severe supply constraints, and with a variety of survey indicators pointing to increasing price pressures, we continue to believe that inflation will pick up quickly over the next few months. “

In terms of the market reaction; stocks and precious metals have rallied on the data, while yields on US government debt and the US dollar have fallen. Such a reaction is indicative of the fact that the CPI report should have alleviated fears of an “overheating” of the US economy in the coming months / years, something that is feared will lead to a response to easing the monetary policy of the United States. Fed ahead of schedule. Given that the Fed’s easing expectations are often associated with lower prices of stocks, precious metals and bonds (which means higher bond yields) and a stronger dollar, the fact that Wednesday’s CPI report has alleviating these fears means an opposite reaction.