The shekel continues to strengthen. The Bank of Israel set the representative shekel-dollar rate this afternoon down 0.48% at $3.103/$ and the shekel-euro rate was set down 0.37% at 3.589/€.
In late afternoon inter-bank trading the shekel-dollar rate was down a further 0.44% at 3.0892/$ and the shekel-euro rate was down 0.33% at NIS 3.5776/€ before rising sharply to NIS 3.11/$ and NIS 3.5987/€. Market sources believe that the Bank of Israel intervened aggressively in forex trading to life the rate back above NIS 3.10/$. The Bank of israel declined to comment.
The shekel is at its strongest ever against the basket of currencies that reflects Israel's trading partners and a new 25 year peak against the dollar. But for the $30.5 billion in foreign currency purchases by the Bank of Israel this year to assist exporters, the shekel-dollar rate would have been below NIS 3/$. At least importers and Israeli consumers are feeling the benefits.
Israel Discount Bank trading room market strategist Shmuel Katzbian sees the shekel appreciation continuing in 2022. "I estimate that the shekel will strengthen against many currencies in 2022, although in the short term, it is more difficult to know.
He believes that the dollar will strengthen in 2022 but not necessarily against the shekel. "The US will raise interest rates once or twice next year although in the euro bloc I do not see interest rates rising in 2022."
"The question is what will happen to the dollar against the shekel and there is no certain answer due to several contradictory forces. If the dollar strengthens significantly worldwide or we see stocks worldwide falling, then we will see the dollar strengthen against the shekel. But generally you must remember that the forces pushing the strengthening of the shekel against the basket of currencies is very strong and they will stay with us in the future.
He added, "The structural story that supports the shekel has been consolidating for years and has strengthened in the most recent quarters. Israeli exports a very large volume of high-tech services (cybersecurity, software, fintech and more) and recent data that was published showed that high-tech services exports between January and August rose 225 compared with the corresponding period of last year and 40% compared with 2019. This acceleration has caused a very large current account surplus in Israel and this is one of the most important indicators in influencing trends on the foreign currency market.
"A second structural point that has influenced the strengthening of the shekel is related to institutional bodies for whom the local stock market is too small for them so they allocate major resources for many overseas investments. So they want to neutralize this risk and increase hedging by selling dollars on the market - a step that strengthens the shekel.
"Another factor is the high flow of direct net investments in Israel in at least 10% of the capital of shares of Israeli companies by foreign residents. This together with record fund raising by tech companies and record amounts of exits supports the influx of foreign currency, strengthening the shekel."
Published by Globes, Israel business news - en.globes.co.il - on November 8, 2021.
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