• Silver drops as rising Fed interest rate expectations, making the non-yielding metal less attractive.
• CME FedWatch tool indicates that markets are now pricing in an 83.1% probability of rate hikes by the end of December.
• A strong US Dollar Index increases costs for foreign buyers, weighing heavily on Silver.

XAG/USD depreciates for the third successive day, trading around $56.90 per troy ounce during the Asian hours on Thursday. Silver price is facing steady headwinds as market expectations shift toward tighter monetary policy from the Federal Reserve (Fed). This hawkish momentum gained traction after Fed Chairman Kevin Warsh emphasized a strict commitment to curbing inflation, noting that the broader economy remains on a stable footing. Reflecting this shift, the CME FedWatch tool indicates that markets are now pricing in an 83.1% probability of a rate hike by December.

These rising Fed interest rate expectations have completely overshadowed the deflationary progress seen elsewhere in the markets. Specifically, recent breakthroughs in US-Iran peace negotiations had successfully pulled oil prices back down to pre-conflict levels, significantly easing energy-driven inflationary pressures. However, because Silver provides no yield, the threat of higher interest rates matters more to investors right now than the cooling oil market.

Moving forward, investor focus is locked on the upcoming US Personal Consumption Expenditures (PCE) data release. Forecasts suggest that headline inflation will heat up to 4.1% year-over-year in May, up from April’s 3.8%, while the core PCE metric is projected to edge higher to 3.4%.

Compounding Silver’s struggles, the US Dollar Index (DXY) continues to hold near a one-year high of 101.80, making the dollar-denominated metal significantly more expensive for international buyers holding other currencies.

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