Silver Price Forecast: XAG/USD rebounds to near $26.50 despite hawkish Fed

• Silver price edges higher despite the hawkish sentiment surrounding the Fed.
• The prolonged higher interest rates could dampen the demand for non-yielding assets like silver.
• The stronger Employment Cost Index bolstered the strength of the US Dollar.

Silver price recovers its recent losses registered in the previous session, trading around $26.50 per troy ounce during the Asian trading hours on Wednesday. However, US Dollar (USD) strengthened on the back of rising US Treasury yields. Market participants adopt a cautious stance ahead of the Federal Reserve’s (Fed) policy decision.

The stronger labor cost data from the United States (US) has reignited discussions about the Federal Reserve potentially delaying rate cuts due to inflationary pressures. The US Employment Cost Index surged by 1.2% in the first quarter, marking its largest increase in a year and surpassing both expectations of 1.0% and the previous figure of 0.9%. This data underscores existing wage pressures, which could exacerbate the impact of persistent inflation within the US economy.

Traders have been scaling back expectations for Fed rate cuts this year, buoyed by robust US economic data and persistent inflation. According to the CME FedWatch Tool, the probability of the Federal Reserve maintaining interest rates at their current level of 5.5% in June has surged to 91.6%, up from 81.2% a week ago. The prospect of higher interest rates increases the opportunity cost of holding non-yielding assets like Silver, dampening its appeal.

Investors are expected to monitor the release of the ADP Employment Change and ISM Manufacturing PMI from the United States on Wednesday, ahead of the Fed’s Monetary Policy Statement. These data releases are likely to provide further insights into the current state of the US economy, influencing market expectations regarding future monetary policy decisions.