The shekel was stable this morning against both the dollar and the euro but the Tel Aviv Stock Exchange (TASE) tumbled in line with world markets after the US Federal Reserve lifted key rates last night by 0.25%.
In morning inter-bank trading, the shekel-dollar exchange rate is down 0.02% against the dollar at NIS 3.755/$ and up 0.12% against the euro at 4.289/€.
Yesterday, the Bank of Israel set the shekel-dollar representative rate down 0.186% at NIS 3.756/$ from Tuesday's rate and set the shekel-euro rate down 0.014% at 4.284/€.
Following Wall's Streets worst reaction to a rate hike since 1994, stock markets around the world are falling sharply. The Tel Aviv 35 Index is down 2.20% at 1524.50 points. Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) is down 4.86%, Perrigo Company (NYSE:PRGO; TASE:PRGO) is down 4.77% and Delek Group Ltd. (TASE: DLEKG) is down 3.71%. Bank Hapoalim (TASE: POLI) is down 1.91% and Israel Discount Bank (TASE: DSCT) is down 1.98%.
The US Federal Reserve rate hike had been expected despite President Donald Trump's fierce criticism of the fast rising US key interest rates. The Fed did pay heed to Trump by forecasting only two rate hikes in 2019 instead of three but generally there was disappointment at the tweaking rather than any major signs that the Fed intends to stop tightening monetary policy.
The rate hike widens the interest rate gap between the shekel and the dollar. Yesterday was the Fed's ninth interest rate hike since 2015 and raises the rate to 2.25-2.50%. In contrast, the Bank of Israel raised the interest rate by 0.15% last month to 0.25% - it's first rate hike since June 2011, and only one rate hike is expected in 2019.
Nevertheless, the forex market had already priced in a US rate hike and despite the widening rate gap between Israel and the US Prico Risk Management and Investments CEO Yossi Fraiman said, "in the medium to long term the shekel will strengthen, which may challenge the Bank of Israel if the dollar strengthens against the world's major currencies."
Published by Globes, Israel business news - en.globes.co.il - on December 20, 2018
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