Spot silver plummeted as much as 9.00% intraday, falling below $76 per ounce. Precious metals faced pressure as rising U.S. inflation, fueled by the Middle East conflict, strengthened market expectations for the Federal Reserve to maintain higher interest rates. The Strait of Hormuz, a critical global energy transit chokepoint, remains virtually closed, and peace talks between the U.S. and Iran are at a stalemate. This has intensified concerns that elevated oil prices will exacerbate inflationary pressures, thereby boosting expectations for Fed rate hikes. Global investors are offloading government bonds, driving borrowing costs from Japan to the U.S. to multi-year highs amid growing fears that war-driven inflation will compel major central banks to pursue interest rate increases. Against this backdrop, U.S. Treasury yields and the U.S. dollar have risen in tandem. On Friday, the yield on the 10-year U.S. Treasury note climbed to 4.583%, its highest level since May 2025. The U.S. Dollar Index advanced further, gaining 0.47% to 99.286 at the time of reporting. The dramatic shifts in oil prices and the inflationary landscape have forced a historic reversal in market pricing for the Federal Reserve's policy path. Just before the Middle East conflict erupted in February, overnight index swap markets indicated traders broadly anticipated the Fed would cut rates by approximately 50 basis points throughout 2026. However, the energy shock triggered by the war has completely altered the interest rate outlook. Currently, the CME FedWatch Tool shows the market has largely priced out the possibility of a Fed rate cut before the end of 2027. Conversely, the market now assigns a 39% probability of a 25-basis-point rate hike by the Fed before the end of this year and a 37% probability of a similar hike by the end of October 2027.
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