Israel's foreign currency market had a stormy day today. The Bank of Israel intervened in the foreign currency market, buying dollars. However, this time the goal was to support the shekel-euro exchange rate, which fell below the NIS 5/€ level.
The euro weakened in part because of concerns about the debt crises in Portugal, Ireland, Greece, and Spain (the PIGS). The shekel-euro exchange rate fell below the NIS 5/€ level, lowering the effective exchange range, and prompting the Bank of Israel intervention.
Despite the intervention, the shekel-dollar exchange rate struggled to rise, even as the dollar strengthened by 1-1.5% against leading currencies. The dollar is gaining ground due to a credit downgrade for Portugal, which dragged down stock markets and caused investors to decamp to the dollar.
Market sources believe that the Bank of Israel bought just over $100 million today in two purchases. It entered the market when the shekel-dollar exchange rate was at NIS 3.735/$. The shekel depreciated slightly following the intervention, and the Bank of Israel set the representative exchange rate at NIS 3.742/$.
The shekel continue to appreciate against the euro, however, and the representative exchange rate at set at NIS 4.999/€, its lowest level since November 17, 2008.
In global markets, the euro fell to a ten-month low against the dollar, dropping 0.88% to $1.355/€.
Trading in the shekel was mainly influenced by developments on international markets. However, in the coming days there are many local players who will effect the shekel. Market sources believe that exporters will bring forward their usual dollar sales, and will begin selling tomorrow, rather than at the start of the month, because of the Passover holiday. The expiry of dollar options was also brought forward to tomorrow.
Energy companies that buy crude oil are also expected to make their usual dollar purchases on Friday, the last Friday of the month.
The Bank of Israel will announce its interest rate decision for April on Sunday, a day earlier than usual, because of Passover.
There will be no foreign currency trading on Sunday, Monday, or Tuesday, because of the weekend and Passover holiday, and the Bank of Israel will not set representative exchange rates.
Published by Globes [online], Israel business news - www.globes-online.com - on March 24, 2010
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