Shekel gains against dollar mount

The shekel has been strengthening sharply today against the dollar and is stable against the euro. In afternoon inter-bank trading, the shekel-dollar exchange rate is down 1.29% at 3.618/$ and the shekel-euro rate is up 0.05% at NIS 4.042/€.

Yesterday, the Bank of Israel set the representative shekel-dollar rate 1.186% lower from Tuesday, at NIS 3.665/$, and the representative shekel-euro rate was set 1.053% lower at NIS 4.039/€.

Mizrahi Tefahot Bank chief economist Ronen Menachem explains, “The strengthening of the shekel against the dollar continues. I attribute this first and foremost to optimism in overseas markets, which also extended to the stock market in Israel yesterday. The sharp increases increased the equity exposure of local investors abroad and it is likely that they had to convert dollars into shekels to offset the overexposure, which created demand for the shekel. It is possible that the connection between the increases in the foreign markets and the strengthening of the shekel, which weakened due to the judicial overhaul, has at least been renewed temporarily”.

“Also, the market is exposed to media discourse on the subject of the judicial reform legislation and the possibility/initiatives/international pressure to soften the moves and renew negotiations. It is possible that the market is pinning its hopes on this and ‘building’ on the period of time before the second and third readings. The Bank of Israel’s comfortable fiscal deficit forecast is also, in my opinion, a factor that will provide support for the shekel in the short and medium term.”

Menachem concludes, “It should be remembered that even after the gains of the last two or three days, the shekel is still well within the bounds of the excessive depreciation that the Bank of Israel has been talking about. Therefore, movements in any direction in the range of NIS 3.55 to 3.75/$ as we have seen in the last two months can continue. The shekel will continue to be reactive in all directions to both foreign markets and domestic developments. Tomorrow the consumer price index in Israel will be published and it will be important to examine the shekel’s reaction to the figure.

“The shekel is strengthening against the dollar due to across-the-board dollar weakness worldwide.”

IBI Investment House chief economist Rafi Gozlan said, “The strengthening of the shekel against the dollar is mainly due to the across-the-board weakening of the dollar in the world, and to a lesser extent due to domestic factors. In terms of the global factor, the weakening of the dollar in the world gained momentum after the more moderate than expected increase in inflation in the US in June. On the other hand, in terms of other currencies, the strengthening of the shekel is more moderate, and reflects a certain relaxation after the uncertainties that prevailed following the passing of the first reading of the law to curb the court’s use of unreasonableness. Thus against the euro, the shekel continues to trade at the high levels of recent times.”

Prico Risk Management, Finance and Investments CEO Yossi Fraiman said, “The continuous increase in the currency exposure of institutional investors, led by the funds, supported actions to reduce exposure to foreign currency, which reached more than 19% of the value of the assets. In our estimation, the situation that indicates this flocking to holding shekels expresses proactive technical movements of capital on a large scale and not a change in tastes or hedging policy. Plans to encourage economic activity in China as well as reducing the supply of oil by OPEC will support price increases. In our estimation, interest rates in the US, Europe and the UK will continue to rise in order to cool inflation, but the tight labor market when unemployment is low will continue to support wage increases and inflationary pressures. The Bank of Israel will be required to raise the shekel interest rate. The challenge will be in the public arena on whether to make a decision to raise it on the eve of Rosh Hashanah.”

Published by Globes, Israel business news – en.globes.co.il – on July 14, 2023.

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