Silver drops more than 3.5% as stronger dollar and surging oil weigh on prices

Silver prices fell more than 3.5% in European trading on Monday, opening the week on a sharply negative note and extending losses for a second consecutive session. The decline was driven by a stronger US dollar and a sharp rise in oil prices after the United States and Iran exchanged military strikes over control of the Strait of Hormuz.

Markets are closely watching this week's release of key US inflation data for June, along with Federal Reserve Chair Kevin Warsh's testimony before Congress, for further clues on the outlook for US interest rates.

The Price

• Silver prices fell 3.65% to $57.71 an ounce, from the opening level of $59.89, which also marked the session high.

• At Friday's settlement, silver lost 0.1%, posting its fourth decline in the past five sessions as the stronger US dollar weighed on prices.

• The white metal fell 4% last week, marking its third weekly loss in the past month amid renewed tensions in the Middle East and rising expectations of higher US interest rates.

US dollar

The dollar index rose 0.25% on Monday, extending gains for a second consecutive session and reflecting continued strength in the US currency against a basket of global currencies.

Safe-haven demand for the dollar returned as military tensions between the United States and Iran escalated over control of the Strait of Hormuz, threatening to derail the framework agreement and reignite direct confrontation between the two sides.

Global oil prices

Oil prices surged more than 4% on Monday and were on track to reach their highest level in several weeks after Iran announced the closure of the Strait of Hormuz, fueling concerns over supply disruptions from the Gulf region.

The sharp rise in global oil prices has renewed fears of accelerating inflation, increasing the likelihood that central banks will raise interest rates in the near term, marking a sharp shift from pre-war expectations for rate cuts or an extended period of unchanged policy.

Latest developments in the Iran conflict

• US Central Command (CENTCOM) launched a third intensive wave of airstrikes along Iran's coastline.

• The US strikes followed attacks by Iran's Revolutionary Guard Navy on commercial vessels in the Strait of Hormuz.

• Iran expanded its military operations against Gulf states following the US strikes and announced the closure of the Strait of Hormuz.

• President Donald Trump said the Strait of Hormuz was "open and will remain open" through military force, while the US Treasury revoked temporary licenses allowing Iranian oil sales.

• Iran's Foreign Ministry said Washington had undermined diplomatic efforts and violated the terms of the framework agreement.

• Iranian Parliament Speaker Mohammad Bagher Ghalibaf declared that the era of "unequal agreements" was over and that Washington would pay the price.

US interest rates

• Amid rising oil prices, CME Group's FedWatch tool showed that the probability of the Federal Reserve leaving interest rates unchanged at its July meeting fell from 78% to 68%, while the probability of a 25-basis-point rate hike increased from 22% to 32%.

• Markets are currently pricing a 24% probability that the Federal Reserve will leave rates unchanged at its December meeting, while the probability of a 25-basis-point hike stands at 76%.

• Investors are closely monitoring incoming US economic data and comments from Federal Reserve officials to reassess those expectations.

• June US inflation data will be released on Tuesday and is expected to play a key role in shaping the outlook for US interest rates.

• Markets will also closely follow Federal Reserve Chair Kevin Warsh's first semiannual testimony before Congress on Tuesday and Wednesday.