XAG/USD falls 2.5% amid rising US inflation and expectations of tighter Fed policy, weighing on non-yielding assets.
Silver prices (XAG/USD) declined 2.5% to near $56.50 in Asian trading Friday, extending a months-long downtrend. Persistent inflationary pressures, fueled by elevated energy costs linked to Middle East tensions, have bolstered expectations for Federal Reserve rate hikes, dampening demand for non-yielding assets like silver.
US headline inflation accelerated to 4.2% year-on-year in May, the highest since April 2023, while core inflation rose to 2.9%. The Fed’s preferred inflation gauge, the core PCE, also climbed to 3.4% in May, reinforcing hawkish sentiment. Fed officials, including New York Fed President John Williams, signaled monetary policy remains restrictive but may need further tightening.
Markets now price an 81.7% chance of at least one Fed rate hike this year, a sharp reversal from earlier expectations of rate cuts.