Silver Price Forecast: XAG/USD holds key support of $29 as cooler US CPI boosts Fed rate-cut bets

Silver price (XAG/USD) clings to key support of $29.00 in Friday’s American session. The white metal rebounds as US bond yields come under pressure due to improved speculation that the Federal Reserve (Fed) will start reducing interest rates from the September meeting.

10-year US Treasury yields have dropped to near 4.20%. Lower yields on interest-bearish assets reduce the opportunity cost of holding an investment in non-yielding assets, such as Silver.

The CME FedWatch tool shows that the probability for rate cuts in September has improved to almost 71% from 50.4% recorded a week ago. Market expectations for Fed rate cuts have risen as the United States (US) consumer and produce inflation decline on monthly and an annual basis in May. Major contribution to decline in price pressures came from soft gasoline prices.

The CME FedWatch Tool also shows that there will be two rate cuts this year against one signalled by Fed policymakers in their latest dot plot. Fed officials lowered potential number of rate cuts in the forecast report from three forecasted in March as they were concerned over inflation remaining stubborn due to strong labor market conditions.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to 105.70.

Silver technical analysis

Silver price trades inside Thursday’s trading range. The white metal trades in a Falling Channel chart pattern in which each pullback is considered as selling opportunity by market participants. The asset has dropped below the 200-period Exponential Moving Average (EMA), which trades around $29.40, indicating the overall trend has turned bearish.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting a consolidating ahead.

Silver four-hour chart