For the first time since the beginning of April the shekel has appreciated to NIS 3.70/$. In early afternoon inter-bank the shekel is 0.45% lower against the dollar at NIS 3.705/$ and 0.63% lower against the euro at 3.982/€. Yesterday the Bank of Israel set the representative shekel-dollar rate down 0.508% from Monday, at NIS 3.722/$, and the representative shekel-euro rate was set 0.568% lower at NIS 4.007/€. Why is the shekel strengthening?
There is no doubt that developments surrounding a possible hostage deal add to the positive sentiment in the markets. Some senior market sources say that foreign investors are linking the hostage deal being put together to a ceasefire that would end the war, which gives a boost to the local market.
On the other hand, the entry of the IDF into Rafah was supposed to raise the pressure threshold among investors and signal an increase in the risk premium due to escalation concerns. However, the combination of announcements that the IDF will operate in Rafah with targeted operations in the Rafah crossing area and the border with Egypt, calms the markets and indicates that Israel is trying to put pressure on Hamas while calming the US.
Prico Risk Management, Finance and Investment CEO Yossi Fraiman says, "Brisk activity by exporters, who must pay taxes and wages in shekels, floods the local foreign exchange market, at a time when demand for foreign exchange is low. The situation creates an oversupply and appreciation of the shekel below the NIS 3.70/$ level. The weakening of the dollar in the world also contributes to the weakening of the dollar in the local arena. High-tech companies that need to pay taxes after raising foreign capital raising, sell foreign exchange and contribute to the excess supply. The appreciation of the shekel offsets some of the price increases that were expected and also contributes to slowing the rate of inflation."
Estimates are that the shekel will continue to strengthen
Energy Finance CEO Yossi Frank says he sees the shekel continue to strengthen against the US dollar and estimates that it will reach NIs 3.50/$. He adds, "Currently the only thing keeping the dollar high against the shekel is the security situation. As soon as there is a hostage deal, for example, there will be a significant strengthening of the shekel."
Frank qualifies this and points out that the direction can change: "If the deal gets complicated, especially if there is a complication in Lebanon, then the shekel will weaken, but the probability of this with the 'bookmakers' is not particularly high, therefore beyond the institutional activity that affects the shekel's devaluation, there is no reason to bet against it. We see financing rounds in high-tech, beautiful exits, a lot of money flowing into the defense industry and all this will support the strengthening of the shekel, so this is already starting to be reflected."
Expectations of a cut in the US interest rate benefits the shekel
On top of this, the latest US job figures, show a cooling in the employment market and higher unemployment and have increased expectations of a rate cut by the US Federal Reserve in the summer. Closing the interest rate gap between the US and Israel could bring about a strengthening of the shekel.
Published by Globes, Israel business news - en.globes.co.il - on May 8, 2024.
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