Silver (XAGUSD) is down by over 4% on Wednesday amid a strengthening dollar and rising expectations of rate hikes.
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Forget margin or options. Here's how the pros trade QQQThe U.S. Dollar Index, which tracks the greenback against a basket of major currencies, is up by 0.27% at the time of writing. With a stronger dollar, silver becomes more expensive for foreign buyers, reducing demand. Silver has also rallied during the past month, which can lead to profit-taking.
Rate Cut Odds Fall as Inflation Risks Rise
Elsewhere, the odds of lower rates have plummeted over the past few days due to the risk of inflation. Silver tends to benefit in a low-rate environment because the opportunity cost of owning it compared to interest-bearing assets, like Treasuries, is lower.
The odds of one rate hike by year-end on the CME FedWatch tool sit at 31.9% compared to 20.7% a week ago, while the odds of one rate cut have fallen to 1.6% from 7.2%. The most likely scenario, at 60.6%, is for the Fed to hold rates steady.