Silver Price Forecast: XAG/USD depreciates toward $33.50 ahead of Fed policy decision

• Silver price pulled back from a five-month high of $34.23, reached on Tuesday.
• Silver bulls take a breather ahead of the Federal Reserve's interest rate decision due on Wednesday.
• The strengthening US Dollar continues to create headwinds for the dollar-denominated precious metal.

Silver price (XAG/USD) retreated after reaching a five-month high of $34.23 on Tuesday, trading around $33.70 per troy ounce during European hours on Wednesday. The decline comes as Silver bulls take a breather ahead of the Federal Reserve's (Fed) interest rate decision later in the day.

Traders will likely monitor the Fed's updated economic projections for insights into the future trajectory of US interest rates. Higher interest rates tend to weigh on demand for non-interest-bearing assets like Silver, limiting its upside potential.

Any hawkish signals from Fed policymakers could strengthen the US Dollar (USD), making dollar-denominated Silver more expensive for buyers using foreign currencies. This could create additional headwinds for the precious grey metal.

However, downside risks for Silver price appear limited due to increased safe-haven demand driven by escalating geopolitical tensions. US President Donald Trump reaffirmed his administration's commitment to military action against Yemen's Houthis and warned that Iran would be held accountable for any further disruptions to Red Sea shipping. Meanwhile, Israeli airstrikes in Gaza, which ended a week-long ceasefire, resulted in at least 200 casualties, according to Palestinian health authorities, as reported by Reuters.

That said, geopolitical tensions have slightly eased after President Trump and Russian President Vladimir Putin agreed on Tuesday to an immediate pause in strikes on energy infrastructure amid the Ukraine war. However, Putin declined to support a broader, month-long ceasefire negotiated by Trump's team with Ukrainian officials in Saudi Arabia.