The shekel-dollar exchange rate soared in inter-bank trading this morning, while the shekel-euro exchange rate plummeted as the euro fell 1.63% against the dollar to $1.285/€ in international markets today, its lowest level since November 2006. The shekel-dollar exchange rate rose 2.46% to NIS 3.841/$ in early trading, while the shekel-euro exchange rate fell 2.37% to NIS 4.935/€. The shekel-dollar representative rate was eventually set at 3.834/$, and the shekel-euro rate at 4.943/€. The representative shekel-sterling rate was set at 6.296/£, 3.8% lower than the previous rate set on Monday.
There was no foreign currency trading in Israel yesterday, because of a Jewish holiday.
" Expectations for rate cuts in Europe and the U.K. are growing stronger by the day because of the weak economic outlook,'' said Koji Fukaya, senior currency strategist at the Tokyo unit of Deutsche Bank, the world's largest currency trader. "The euro still looks expensive. Other European currencies are also likely to fall."
Foreign exchange site Prico notes that the Bank of Israel's prediction that inflation will fall in the coming months implies that it will continue to pursue an expansionist monetary policy and make a further cut in the interest rate. The combination of a low shekel interest rate, market uncertainty, and investors' search for safe haven, while the central bank continues its dollar purchasing policy, support a further depreciation of the shekel against the dollar.
Prico believes that if the shekel-dollar exchange rate stabilizes at over NIS 3.75/$, it could rise to NIS 3.84-3.86/$, its highest level so far this year. Any movement above this level could signal a rise to new heights.
Foreign exchange site Trifx says that, fundamentally, there is little good news from the US, and that risk aversion is driving the dollar upwards against other currencies. Short-term interest rates are falling and the fact that there is still a need for governments to try to increase liquidity indicate that investors' confidence has not yet improved in any meaningful way. This means that the dollar will probably continue to strengthen despite signs that the US is entering a recession.
Published by Globes [online], Israel business news - www.globes-online.com - on October 22, 2008
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