Oil prices are on a downward trajectory, and US President Donald Trump has called for an immediate worldwide reduction in interest rates. Simultaneously, the US Dollar Index (DXY) continues to weaken as US Treasury yields depreciate amid improved risk sentiment. These developments have led to a significant increase in the demand for silver, pushing its price higher.
President Trump's economic policies, characterized by low taxes and light-touch regulations, are expected to stimulate growth. His recent remarks advocating for immediate rate cuts have already influenced market dynamics. The Federal Reserve, however, remains cautious, indicating that evidence of economic weakness and subdued inflation prints are necessary to justify further policy easing.
"With Oil prices falling, I’ll demand that interest rates be cut immediately, and they should be reduced worldwide," – US President Donald Trump
The weakening of the USD, coupled with declining Treasury yields, has positively impacted the XAU/USD pair. Traders are betting on more Fed rate cuts, which further depress the US Dollar and bolster silver's appeal. The EUR/USD is also holding higher ground, trading near 1.0450 in the early European session on Friday, supported by renewed US Dollar weakness.
In Asia, higher inflation forecasts by the Bank of Japan (BoJ) signal further rate hikes, lending support to the Japanese Yen. The USD/JPY is experiencing sizeable losses, trading below 155.50 in early Europe on Friday. The BoJ's recent rate hike to 0.50% has contributed to the pressure on this currency pair.
Silver's industrial demand is on the rise due to its high electric conductivity, making it a crucial component in electronics and solar energy sectors. This demand has potentially strengthened following President Trump's comments about his preference to avoid tariffs on China. Silver prices often follow gold's movements and tend to rise due to their safe-haven status during geopolitical instability or fears of a deep recession.
President Trump has also expressed optimism about reaching a trade deal with China after conversing with President Xi Jinping on Thursday. This development could further influence market dynamics and investor sentiment.
For the US Federal Reserve, patience remains a virtue as it waits for concrete signs of economic weakening before committing to more aggressive policy measures. Despite President Trump's urgings, the Fed is likely to maintain its data-driven approach.