The strengthening of the shekel against the dollar continues. In afternoon inter-bank trading, the shekel exchange rate is down 1.01% against the dollar at NIS 3.185/$ and down 0.17% against the euro at NIS 3.547/€.
Yesterday, the Bank of Israel set the representative shekel-dollar rate down 0.155% from Monday, at NIS 3.217/$, and the representative shekel-euro rate was set 0.359% higher at NIS 3.553/€.
The main reason for the strengthening of the shekel is the rise on overseas stock markets led by the tech sector and this has a direct connection to Israel's economy.
Many private investors are not in the habit of hedging their overseas investments expecting volatility in foreign currency rates to balance out over time. But Israeli institutional investors that manage our pension funds as part of their investment policy are required to hedge dollar investments, compelling them to buy dollars on the market. Thus as overseas markets rise, they must sell dollars on the market and buy shekels.
Phoenix-Excellence chief economist Amir Kahanovich said, "The shekel is again strengthening and this poses a dilemma for the Bank of Israel. The recovery of the tech share sector, which greatly overlaps with the Israeli economy, together with the overall recovery of markets overseas, which increases the holdings of institutional bodies in foreign currency, and the return of investors to risk assets, including in peripheral countries like Israel, as well as indications about the Bank of Israel's determination to increase interest rates, has seen the shekel strengthen quickly. At the current rate it will return within two months to its previous peak and then what will the Bank of Israel do? Will it again vacillate on interest rates? In our estimation, even if the shekel strengthens, the Bank of Israel will have no choice but to start raising interest rates. The only question, is how long will the rate hikes continue for, until the situation reverses and it can return to cuts."
Published by Globes, Israel business news - en.globes.co.il - on March 30, 2022.
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