Silver Price Forecast: XAGUSD hangs around $20.60s, unable to rally despite US dollar weakness

• Silver price edged up 0.57% on Wednesday after US inflation eased from 4-decade highs.
• US inflation annually decelerated from above 9% as gasoline prices dropped.
• Fed’s Evans and Kashkari expect further rate hikes.
• Fed’s Kashkari foresees the Federal funds rate (FFR) at 4% by the end of 2022.

Silver price falters to rally on Wednesday after the US Department of Labor reported that inflation in the US lowered from 4-decade highs above the 9% threshold, which traders used as a reason to increase their bets on riskier assets. Consequently, US bond yields fell, which usually lifts precious metals prices, but not this time. At the time of writing, XAGUSD is trading at $20.63.

XAGUSD seesaws, failing to capitalize on US dollar weakness

US equities finished with hefty gains, between 1.6% and almost 3%, driven by US economic data. July’s inflation cooled down, as shown by the Consumer Price Index (CPI) dipping to 8.5% YoY, less than estimated and lower than June’s 9.1%. Excluding volatile items like food and energy, also called core CPI, increased by 5.9% YoY, aligned with the previous month’s figures, less than the 6.1% foreseen.

Investors reacted positively to the report, dumping the greenback, with the US Dollar Index sliding 1%, sitting at 105.234, while US bond yields fell.

Late during the day, Fed speakers led by Chicago Fed President Charles Evans and Minnesota Fed’s Neil Kashkari crossed newswires.

Evans said that albeit CPI data was the “first positive report,” inflation is unacceptably high. He added that he expects the Federal funds rate (FFR) to be at 3.25-3.50% by year’s end. He added that by the end of 2023, he foresees the FFR between 3.75-4.00%.

In the meantime, Minnesota Fed’s Kashkari said that although the CPI news was good, he said that the Fed is “far, far away from declaring victory.” He added that he hadn’t seen anything that changes the Fed’s path to 3.9% by year-end and the 4.4% by 2023. Kashkari also pushed back against the market’s rate cuts expectations early in the next year and said they are “not realistic.”

XAGUSD prices reacted downwards, with Kashkari remarks, sliding from around $20.90 to $20.51, while the US 10-year bond yield trimmed earlier losses and finished almost flat at 2.785%.

What to watch

Ahead in the week, the US economic calendar will feature prices paid by producers, also known as PPI, alongside Initial Jobless Claims on Thursday. By Friday, the University of Michigan’s Consumer Sentiment and Inflation Expectations.

Silver (XAGUSD) Key Technical Levels