Silver price (XAG/USD) drops to near three-week low of $26.70 in Tuesday’s European session. The white metal faces a sharp sell-off after breaking below the crucial support of $27.00. The asset faces pressure as the US Treasury yields rise amid caution ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.
10-year US Treasury yields rise to 4.63% on expectations that the Fed will maintain a hawkish narrative. Higher yields on interest-bearing assets increase the opportunity cost of holding investments in non-yielding assets, such as Silver.
The CME FedWatch tool shows that interest rates will remain unchanged in the range of 5.25%-5.50%. Therefore, investors will keenly focus on the Fed’s guidance on interest rates. The Fed is expected to support keeping interest rates at restrictive levels for a longer period until it gets evidence that inflation will come down to the 2% target.
Investors will also watch whether the Fed remains committed to its three rate-cut projections this year. Doubts over the Fed’s three rate-cut projections that were shown in March’s dot plot have emerged due to United States inflation remaining stubbornly higher in the first quarter.
The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, bounces back to 105.90. The US dollar's appeal improves ahead of a data-packed week. This week, investors will focus on the ISM Manufacturing PMI and the Nonfarm Payrolls (NFP) report for April, which will be published on Wednesday and Friday, respectively
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