- Silver is currently holding above $23.00 and on course for a second day of gains amid dovish central bank vibes.
- The Fed ruled out 75bps rate hikes on Wednesday and the BoE sounded the alarm about a possible UK recession.
- Focus now shifts to Friday’s official US labour market report.
Spot silver (XAG/USD) prices held above the $23.00 per troy ounce level on Thursday after markets interpreted the latest BoE policy announcement as dovish, one day after a less hawkish than feared policy announcement from the Fed. At current levels in the $23.10s, XAG/USD trades with on-the-day gains of more than 0.5%, taking its two-day rally to over 2.0% and recovery since earlier weekly lows at $22.12 to more than 4.5%.
After the Fed lifted interest rates by 50 bps as expected on Wednesday and ruled out hiking interest rates in more aggressive 75 bps intervals at upcoming meetings, a move which analysts said removed some downside risk to precious metals, the BoE warned of a recession in the UK economy in 2023, though still raised interest rates by 25 bps on Thursday. Ahead of the release of the April US labour market report on Friday, dovish central bank vibes will likely keep XAG/USD supported above $23.00.
The precious metal might even be able to rally back to test its 200-Day Moving Average in the $23.75 area. But it remains premature to bet on a more substantial rebound back to, say, April’s highs in the $26.00s. While the BoE doesn’t seem likely to tighten monetary policy settings much more amid growing concerns about UK economic growth later in the year, as well as worries about the bank’s ability to meet its long-term inflation objectives, Fed policy risks remain tilted in favour of a further hawkish shift.
Despite ruling out 75 bps rate hikes on Wednesday, Fed Chair Jerome Powell was keen to reiterate that the Fed is prioritising bringing inflation down above all else. If inflation fails to moderate as much as expected (or hoped for) by the Fed in the second half of this year, then risks are tilted towards the Fed signaling interest rates rising significantly above the so-called “neutral” rate.
That could ignite further long-term upside in USD and US yields, which could weigh heavily on silver. Rallies, thus, remain subject to being sold and many XAG/USD bears will continue to target a test of 2022 lows around the $22.00 mark.