Silver Price Forecast: XAG/USD plummets below $72.50 ahead of US NFP data

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Silver price (XAG/USD) is down 2% to near $72.40 during the Asian trading session on Friday.

Silver price plunges to near $72.40 as Fed officials warn of high inflation.
Fed’s Schmid stated that the choice is between holding interest rates high or raising them further.
Investors await the US NFP data for May.

Silver price (XAG/USD) is down 2% to near $72.40 during the Asian trading session on Friday. The white metal faces intense selling pressure as Federal Open Market Committee (FOMC) members have warned of high inflation pressures, and have guided that the choice is between holding interest rates at their current levels or raising them.

Theoretically, high Federal Reserve (Fed) interest rates bode poorly for non-yielding assets, such as Silver.

On Thursday, Kansas City Fed Bank President Jeffrey Schmid said during a fireside chat at the Bank of Kansas City Economic Forum, “The biggest risk facing the economy right now is inflation, and the big question now is whether the Fed should stay patient on rates or raise them to tamp this thing down and meet the inflation target.”

Meanwhile, investors await the US Nonfarm Payrolls (NFP) data for May, which will be published at 12:30 GMT. The US NFP report is expected to show that the economy created 85K fresh jobs, lower than 115K in April. The Unemployment Rate is seen steady at 4.3%. Average Hourly Earnings, a key measure of wage growth, is estimated to have cooled down to 3.4% Year-on-Year (YoY) from the previous reading of 3.6%.

Signs of strong job demand would force traders to raise hawkish Fed bets for the year; however, soft numbers would have a little impact on Fed market expectations as officials seem to be more concerned about high inflation.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.