XAG/USD dips as oil surge lifts Fed hike odds

• Silver falls as Middle East conflicts boost oil, raising inflation fears and expectations of prolonged high Federal Reserve rates.
• The CME FedWatch Tool shows a 51% chance of a September Fed rate hike versus a 23% hold probability.
• Trump reinstated an Iranian blockade and imposed a 20% transit fee on other vessels securing the strait.

Silver price (XAG/USD) loses ground for the third consecutive day, trading around $57.60 per troy ounce during the Asian hours on Tuesday. The price of the non-yielding white metal faces challenges as escalating Middle East tensions drive oil higher, stoking fears that energy-driven inflation will force the Federal Reserve (Fed) to keep interest rates elevated.

Market expectations have shifted rapidly in response, with the CME FedWatch Tool now showing a 51% probability of a Fed rate hike in September, compared to just a 23% chance that rates will stay on hold.

US President Donald Trump has reinstated a naval blockade targeting Iranian vessels and customers transiting the Strait of Hormuz, while simultaneously announcing that all other commercial cargo passing through the strategic waterway will be subject to a 20% reimbursement fee.

Market participants are awaiting two massive macroeconomic catalysts scheduled for Tuesday. The US June Consumer Price Index (CPI) report, where analysts anticipate a divergence between a 0.1% month-on-month decline in headline inflation and a sticky 0.3% increase in the core reading.

Federal Reserve Chair Kevin Warsh will deliver highly anticipated congressional testimony, a session that traders will dissect word-by-word for hints on whether the central bank will validate the market’s growing hawkishness.