Silver plays its own game

The slowdown in US CPI from 2.7% to 2.4% has halted the advance of the US dollar. If inflation returns to its 2% target without a recession, the Fed will not need to keep rates at such high levels. The futures market has raised the chances of a resumption of the monetary expansion cycle to 29% in April and 67% in June. The fall in EURUSD that began after strong employment statistics has been put on hold.

In fact, the Fed is unlikely to change its outlook based on a single report. The central bank needs confirmation of labour market stabilisation and a disinflationary trend. According to Philadelphia Fed President Anna Paulson, prices must fall to 2%, so the central bank’s work is not finished yet. However, a pause in the Fed’s easing cycle plays into the hands of EURUSD bears.

Pressure on the US dollar is being driven by fears of a sharp slowdown in US GDP in the fourth quarter, from 4.4% to 3%, as well as by investor confidence in upbeat business activity reports from the eurozone. According to Capital Group, the currency bloc's economic acceleration will drive inflation and force the ECB to raise its deposit rate by the end of this year. This will bring EURUSD back above 1.2.

The yen was the best performer among G10 currencies in the second week of February. Investors bet on political stability after the Liberal Democratic Party won the parliamentary elections and the associated repatriation of capital to Japan. However, Sanae Takaichi now needs to prove her government's commitment to stabilising finances.

Gold returned above $5,000 per ounce amid mixed signals from the US labour market and inflation. Its path diverged from that of silver. The white metal is falling due to concerns that silver will not be able to return to $100. This is activating sellers of recycled silver. Increased supply amid declining demand from the industry and jewellery due to high prices could return the market to surplus after five years of deficit.

In addition, the gold-silver ratio fell to its lowest level in nearly 13 years at the end of January. The white metal looks expensive from this perspective.