XAG/USD declines as USD regains ground after upbeat US data

Silver price (XAG/USD) is down 1.6% to near $82.00 during the European trading session on Thursday. The precious metal declines as the US Dollar (USD) rebounds strongly, following upbeat ADP Employment and surprisingly strong ISM Services PMI data for February.

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.35% higher to near 99.10.

Technically, a higher US Dollar makes the Silver price an unfavorable risk-reward bet for investors.

The ADP private employment report showed job growth of 63K in February, above market expectations, while the Institute for Supply Management (ISM) reported that the Services Purchasing Managers Index (PMI) rose to 56.1 in February from 53.8 in the previous month. Economists expected the data to come in lower at 53.5.

At the same time, receding dovish Federal Reserve (Fed) prospects for the near term are also weighing on the Silver price. Traders seem confident that the Fed will not cut interest rates in the first half of the year, according to estimates based on the CME FedWatch tool. Such an environment diminishes demand for non-yielding assets, such as Silver, which tend to benefit from lower interest rates.

However, intensified geopolitical tensions in the Middle East could offer a cushion to the Silver price. The war involving the United States (US), Israel, and Iran is expected to continue for longer than initially anticipated, following a denial from Tehran over the New York Times (NYT) report claiming that Iran’s Ministry of Intelligence reached out indirectly to the US Central Intelligence Agency (CIA) with an offer to discuss terms for ending the conflict.