The shekel-euro exchange rate fell 1.1% to NIS 5.388/€ in early morning inter-bank trading today and the shekel-dollar exchange rate fell 0.23% to NIS 3.456/$. The drop in the shekel-euro exchange rate, compared with the much smaller drop in the shekel-dollar exchange rate, is in line with the dollar's strengthening against leading currencies yesterday after the publication of higher than expected US consumer confidence and home prices figures. The positive macroeconomic figures sent Wall Street higher and prompted dollar purchases in foreign currency markets.
On the domestic front, Governor of the Bank of Israel Prof. Stanley Fischer's third consecutive interest rate hike took some foreign currency traders by surprise. Investment houses are split over the Bank of Israel's next moves, even while they agree that high inflation is a reason for more interest rate hikes.
On the other hand, falling oil and commodities prices and the strengthening of the dollar are easing inflationary pressures. Oil fell to $122 a barrel yesterday, and OPEC president Edmund Daukoru said that it could fall to $80 a barrel.
Easy Forex says that the interest rate hike has not caused volatility in the shekel-dollar exchange rate and that most foreign currency traders were waiting to adopt a position. It also noted that 12-month inflation expectations are at 3.2%, above the inflation target ceiling, suggesting that more interest rate hikes are likely before year-end.
Published by Globes [online], Israel business news - www.globes-online.com - on July 30, 2008
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