Forex News

• Silver price drops to near $63.14 ahead of the Fed’s monetary policy announcement on Wednesday.
• The Fed is certain to raise interest rates by 25 bps to 3.75%-4.00%.
• Investors will pay close attention to Fed’s commentary on inflation and the economic outlook.

Silver price (XAG/USD) is marginally lower to near $63.14 during the European trading session on Tuesday. The white metal remains under pressure as investors shift their focus to the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.

According to the CME FedWatch tool, there is a 92% chance that the Fed will hike interest rates by 25 basis points (bps) to 3.75%-4.00%. This will be the first monetary policy adjustment by the Fed this year after maintaining the status-quo in the previous five policy meetings.

Theoretically, higher interest rates by the Fed boost yields on interest-bearing assets, which diminish the appeal of non-yielding assets, such as Silver.

Hawkish Fed expectations have prompted US Treasury Yields significantly. 10-year US Treasury Yields have posted a fresh multi-year high near 5.03%.

In the policy meeting, investors would pay more attention to commentary on inflation and economic outlook to assess Fed’s monetary policy path, knowing from Chairman Kevin Warsh’s past that he won’t deliver so-called forward guidance.

Fed seen hiking in September but stopping after one move

Economists at ING explain that they have "changed our view to a 25bp Federal Reserve rate hike in September in the wake of Chair Kevin Warsh’s address at the Jackson Hole symposium," adding that "the data since then has justified that decision." While they acknowledge that "ordinarily the assumption is that if the Fed hikes, they don’t just go once," and that "financial markets are now pricing two and a half further rate hikes after the all-but-assured 16 September move," the ING team argues that "this time around we think that one and done might be the case," with their projections for jobs and inflation suggesting "no need for a series of hikes."

Silver Technical Analysis

In the daily chart, XAG/USD trades at $63.09. The pair holds below the 20-day Exponential Moving Average (EMA) at $65.12, keeping the near-term bias tilted lower as recent gains have been rejected beneath this dynamic resistance. The Relative Strength Index (RSI) at 44.4 hovers just under the neutral band, suggesting subdued bullish momentum and leaving the metal vulnerable while it fails to reclaim the short-term EMA cap.

On the topside, initial resistance is defined by the 20-day EMA at $65.12, and a daily close above this barrier would be needed to ease the current downside pressure and open the way toward higher levels. Looking down, the August 19 low at $62.19 seems key support level.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

ING strategists Warren Patterson and Ewa Manthey say Gold has slipped as higher Oil prices stoke inflation concerns and reinforce expectations of a potential Federal Reserve rate hike, lifting Treasury yields and the US Dollar. They note that while much hawkish risk is priced, Gold could stay vulnerable if policymakers signal higher-for-longer rates, though geopolitical and energy-related risks still underpin demand.

Higher-for-longer risk weighs on bullion

"Gold traded lower as a sharp rise in oil fuelled inflation concerns and strengthened expectations that the Federal Reserve could deliver its first rate hike since 2023 this week."

"Higher Treasury yields and a firmer US dollar added to the pressure, with investors reducing exposure ahead of Wednesday's decision."

"Much of the hawkish Fed risk appears to be priced in. However, gold could remain vulnerable if policymakers signal rates will stay higher for longer."

"Persistent geopolitical risks and concerns over the economic impact of elevated energy prices should continue to provide underlying support."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Commerzbank’s Michael Pfister argues that rising Oil prices have sharply lifted UK rate expectations, with markets now discounting four Bank of England hikes by mid-2027 versus just over one in June. However, he highlights the UK’s weak labour market and growth risks from upcoming budget talks, questioning whether such tightening is realistic and seeing this as a negative backdrop for the Pound.

UK tightening doubts weigh on Pound

"The oil price risen significantly again in recent weeks, with the 110 USD per barrel mark being targeted following the Houthis’ advance in Yemen. The close link between the oil price and interest rate expectations in the current environment was highlighted in our numerous analyses from the spring, and these analyses have consequently regained significance."

"The Bank of England is no exception. Here, too, interest rate expectations have shifted significantly towards rate rises. While at the end of June the market had priced in just over one rate hike by the middle of next year, the figure now stands at four."

"Policymakers are nevertheless unlikely to find a shift in interest rate policy an easy decision. This is because, even though the growth figures are very robust, the labour market remains in a serious crisis."

"The Bank of England must therefore consider very carefully whether to raise interest rates in such an environment. In the coming weeks, discussions about the forthcoming budget are also likely to gather pace."

"We therefore remain sceptical as to whether interest rate rises on the scale currently anticipated by the market are realistic. Those banking on interest rate rises might be better off, unusually, turning their attention to other markets - this is not a particularly good sign for the pound."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Here is what you need to know on Tuesday, September 15:

The US Dollar (USD) gathers strength to a near two-week high around 99.60 in early European trading on Tuesday as surging oil prices pushed Treasury yields to fresh peaks since 2007. US Consumer Price Index (CPI) accelerated in August. Hotter CPI data followed strong readings in several components of the Producer Price Index (PPI) released on Thursday, reinforcing ‌US rate hike expectations.

Traders are pricing in a more than 92% chance that the Federal Reserve (Fed) will raise rates by 25 basis points (bps) in its September meeting on Wednesday, according to the CME FedWatch tool.

West Texas Intermediate (WTI), the US crude oil benchmark, rose more than 1% on Tuesday as concerns over global supplies intensified after attacks disrupted Saudi Arabia’s East-West pipeline and planned talks between Gulf Arab states and Iran were postponed.

Iran's President Masoud Pezeshkian said on Monday that Tehran’s demands for negotiation with the United States (US) are the same as our previous demands. Meanwhile, US President Donald Trump said the US is open to engaging with Iran after previously repeatedly insisting that he did not want to negotiate with the Islamic Republic.  

On the Asia front, data released by the National Bureau of Statistics (NBS) on Tuesday showed that China’s Retail Sales rose 0.4% YoY in August, compared to a 0.6% growth in July. This figure came in weaker than the 0.8% expected. Industrial Production climbed 5.2% YoY in August, versus 4.5% prior, above the market consensus of 4.8%. 

Fed uncertainty grows as Warsh shifts focus away from forward guidance

Analysts at Commerzbank highlight that “there is currently a high degree of uncertainty surrounding the future of the Fed's monetary policy,” noting a sharp divergence between market pricing and economist expectations. While “market participants anticipate interest rate hikes,” they point out that “economists surveyed tend to expect rate cuts in the coming year,” underscoring the lack of consensus on the policy path.

At the same time, Commerzbank flags a structural shift in the communication framework under the new Fed chair. They note that Kevin Warsh “has rejected the idea of explicit forward guidance,” and that their “analysis of meetings over the past 30 years shows that surprises in forward guidance primarily drove the US dollar.” In their view, “if Warsh weakens this channel, data releases are likely to become more important,” and the “frequent USD performance changes seen between the statement and the press conference under former Fed Chair Jay Powell are likely to become less common.”

Lagarde flags persistent inflation and longer shock, modestly hawkish tone

The FXS Speechtracker score of 6.4 versus President Lagarde’s 6.2 average signals a slightly more hawkish tilt, driven by emphasis on Euro area inflation at 3.3% and the assertion that the current shock is longer-lasting. Highlighting volatile energy markets due to Middle East conflict and stressing that the ECB must act for the entire Euro area, not individual countries, reinforces a cautious stance against premature easing.

Comments on the rise in long-term rates being linked to public finances and funding needs for technologies like artificial intelligence underscore structural pressures that can keep Euro yields elevated. Calls to simplify administrative regulations at both European and French levels point to a pro-growth supply-side agenda, but the overarching focus on above-target inflation and persistence of the shock keeps the balance of risks skewed toward a hawkish interpretation for the Euro.

EUR/USD loses ground below 1.1550 in the European morning. The major pair remains under selling pressure even as a slew of European Central Bank (ECB) policymakers warned of upside inflation risks, which have fuelled expectations of one more interest rate hike this year. Last week, the ECB raised its key policy rates by 25 bps, as expected, and warned that more hikes could follow.

GBP/USD weakens to around 1.3470, the lowest since August 7. The Bank of England (BoE) is set to keep interest rates steady on Thursday despite surging oil prices. 

Financial markets are pricing in a 30% chance of a quarter-point rate hike on Thursday, according to LSEG data on Monday, up from less than 10% at the start of last week, and almost fully pricing in a November move.

USD/JPY rebounds to near 154.85 in the European morning on Tuesday. The Bank of Japan (BoJ) is expected to raise its policy interest rate to 1.25%, the highest level in about 31 years, at its September policy-setting meeting on Friday.

Gold declines below $4,300 on Tuesday. The precious metal remains on the defensive amid hotter US inflation and elevated energy prices, which have caused markets to significantly increase their expectations for tighter Fed monetary policy.