Exchange rate and dollar impact
A stronger-than-expected PCE reading could strengthen the US dollar as markets reassess expectations for rate cuts. The dollar index is currently sensitive to inflation data, with upward pressure likely if the PCE suggests continued inflation. This scenario would create an immediate headwind for silver prices. Conversely, a PCE reading at or below consensus could weaken the dollar and support silver, as markets would likely reinforce expectations of near-term rate cuts.
Implications of interest rate cuts
Futures markets are currently pricing in a 96% probability of a rate cut at the upcoming Fed meeting, with a 70% chance of a further cut in December. However, recent employment figures show unexpected strength, with ADP reporting 233,000 new jobs in October. The robust labor market data, combined with core services inflation remaining elevated at around 4%, increases the risk of delayed rate cuts, potentially putting pressure on silver prices.
Technical analysis
The silver market is showing vulnerability below current levels, with the crucial support zone between $32.49 and $32.12 representing a significant technical threshold. A break below these levels could lead to greater selling pressure. The stacked resistance levels above $34.50 pose formidable barriers to upside momentum.
Market forecast
The short-term outlook for silver appears bearish ahead of the PCE release. The metal faces a critical juncture when dollar strength and interest rate expectations could trigger significant price moves. A PCE reading above consensus would likely strengthen the dollar and push silver towards the $32.49 support level. The potential for a sustained decline increases if the PCE data undermines current rate cut expectations, particularly affecting silver’s appeal as a non-yielding asset.