Forex News
- Silver drops sharply after a wave of forced liquidation triggered by extreme volatility in precious metals markets.
- The rebound in the US Dollar and rising Treasury yields weigh heavily on Silver following Donald Trump’s nomination of Kevin Warsh.
- Despite the violent correction, Silver remains on track for an exceptional monthly performance.
Silver (XAG/USD) comes under intense selling pressure on Friday, posting a sharp correction after reaching a record high the previous day. The white metal gives back a large portion of its recent gains as extreme volatility across precious metals markets triggers widespread liquidation of leveraged positions, while investors lock in profits at elevated price levels. At the time of writing, Silver trades around $102.20, down 12.30% on the day, after hitting an all-time high at $121.66 on Thursday.
The sell-off accelerated during the European session, with prices briefly plunging to an intraday low of $95.08 before attempting to stabilize above the psychological $100 level. This violent move reflects a broad-based pullback from the most speculative safe-haven assets, as markets rapidly reassess the outlook for US monetary policy.
Silver is also pressured by the strengthening of the US Dollar (USD) and rising US Treasury yields following the announcement that US President Donald Trump has nominated Kevin Warsh to lead the Federal Reserve (Fed). Investors view Kevin Warsh as more hawkish on inflation and supportive of balance sheet reduction, reinforcing expectations of a less accommodative Fed than previously anticipated. This shift increases the opportunity cost of holding non-yielding assets such as Silver, weighing further on prices.
Against this backdrop, the spectacular rally seen in recent weeks gives way to a brutal consolidation phase. Even so, despite the sharp pullback, Silver remains on track to post one of its strongest monthly performances on record, underpinned by underlying safe-haven demand driven by geopolitical tensions, particularly in the Middle East, and persistent uncertainty surrounding global growth and the trajectory of US monetary policy.
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
Bob Savage, Head of Markets Macro Strategy at BNY, notes a significant correction in Gold prices, driven by the nomination of Kevin Warsh as the next Fed chair, which has strengthened the U.S. Dollar. Gold fell sharply, with a 5.9% drop, while Silver and Platinum saw declines of over 10%. Despite this sell-off, Gold has gained approximately 17% in January, indicating stretched positioning prior to the correction.
Market correction in precious metals
"Gold and silver prices plunged on Friday as word of Kevin Warsh’s nomination as the next Federal Reserve chair boosted the U.S. dollar and triggered a sharp correction in precious metals. Gold fell as much as 5.9%, while silver and platinum dropped more than 10%, unwinding part of a powerful rally that had pushed technical indicators to extreme levels."
"Despite the sell-off, gold has still put on about 17% in January and silver 43%, underscoring how stretched positioning had become. Analysts said the news on Warsh provided a catalyst for a long-anticipated pullback after historically overbought conditions."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- USD/JPY is retreating from session highs above 154.00 but keeps a moderate bullish tone.
- Trump has nominated former Fed governor Kevin Warsh as the next Fed Chief.
- In Japan, Tokyo CPI data showed cooling in price pressures, easing pressure on the BoJ to hike rates immediately
The US Dollar maintains a moderate bid tone against the Japanese Yen on Friday, but has retreated from session highs at 154.40, and is trading at 153.90 at the time of writing, after Trump confirmed that former Federal Reserve (Fed) governor Kevin Warsh will replace the current bank Chairman Jerome Powell at the end of his term in May.
The Dollar had been appreciating against its main peers earlier on Friday following news reports pointing to Warsh as Trump's pick for the Fed. Warsh is seen by the market as a guarantee that the central bank will maintain its independence, which has eased concerns about a more dovish pick.
Furthermore, news reporting that US Senate Democrats and Republicans have reached an agreement on a package of spending bills has boosted hopes that another government shutdown can be averted, and provided additional support for the Greenback.
Earlier in the week, the Greenback drew support from comments by US Treasury Secretary Scott Bessent, who assured that Washington pursues a strong-dollar policy. Bessent also denied rumours that US and Japan authorities might be preparing a coordinated intervention to support the Yen, which sent the US Dollar tumbling in the first half of the week.
In Japan, Tokyo Consumer Price Index (CPI) data revealed that price pressures continued to cool in January. The core PPI eased to the Bank of Japan’s 2% target from 2.3% in December and 2.8% in November, a disinflationary trend that lifts pressure on the central bank to hike interest rates immediately.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Brown Brothers Harriman (BBH) analysts note that Eurozone Q4 real GDP growth has exceeded expectations, positioning the European Central Bank favorably. Analysts suggest that the ECB can maintain its current rates for some time.
Eurozone growth exceeds expectations
"Eurozone Q4 real GDP growth overshot expectations. Real GDP rose 0.3% q/q (consensus and ECB projection: 0.2%) vs. 0.3% in Q3."
"The ECB is in a good place to keep rates on hold for some time. The swaps curve price-in steady rates at 2.00% over the next twelve months and that’s unlikely to change much in the near term."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Canadian growth figures are expected to show a 0.7% year-on-year increase, but this is viewed as a backward-looking indicator. The Bank of Canada is likely to maintain its neutral stance, with potential rate adjustments leaning towards a decrease. The USD's performance will continue to significantly influence the CAD, notes ING FX Strategist Francesco Pesole.
Canadian growth and USD correlation
"We see no real changes in the neutral stance, but the options remain open, and if we were to see any rate adjustment in the coming months, we think it’s more likely to be down than up."
"If this USD recovery has legs, USD/CAD should at least head back to 1.36-1.37."
"Our view for USD/CAD is bullish in the short-term anyway, not only as we continue to favour the chances of further USD gains from here."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
United States (US) President Donald Trump announced on Friday that he had chosen Kevin Walsh to serve as the next Chair of the Federal Reserve (Fed).
President Trump reportedly had a meeting with Warsh, a former member of the Fed Board of Governors between 2006 and 2011, at the White House on Thursday, later stating: “I’ll be announcing the Fed chair tomorrow morning,” adding that “It’s going to be somebody that is very respected, somebody that’s known to everybody in the financial world. And I think it’s going to be a very good choice. I hope so.”
Kevin Warsh is an American financier and bank executive who has shown support for lower rates in recent months, in line with President Trump’s desires. Nevertheless, Warsh is well known as an inflation hawk who advocates for a smaller balance sheet. While reducing it is technically a tightening measure, Warsh has argued that a smaller, less bloated balance sheet would give the Fed greater flexibility to lower policy rates for the broader economy.
(This story was corrected at 11:05 GMT to fix a typo in the headline stating US President Trump nominates Kevin Warsh as Fed Chair.)
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