The shekel has again been weakening sharply today against the dollar and strengthening against the euro, after the Bank of Israel raised Israel's interest rate by 0.5% yesterday, to 1.25%. In afternoon inter-bank trading, the shekel exchange rate is up 1.07% against the dollar at NIS 3.534/$ and down 0.63% against the euro at NIS 3.634/€.
Yesterday, prior to the rate hike announcement, the Bank of Israel set the representative shekel-dollar rate down 0.851% today from Friday, at NIS 3.496/$, and the representative shekel-euro rate was set 0.765% lower at NIS 3.657/€.
The shekel is trading against the dollar at levels not seen since May 2020. Today's depreciation against the dollar reflects the strengthening of the US currency on world forex markets as investors are attracted to the dollar as a safe haven currency and its rising interest rates. The dollar is at a 20 year high against the euro and a 24-year high against the Japanese yen.
Yesterday the Bank of Israel raised the rate for the third time this year but this will not close the interest rate gap with the US, as the Federal Reserve is expected to announce a 0.75% rate hike this month, for the third successive month.
But it is not only the dollar against which the shekel is weakening. In its rate hike announcement yesterday the Bank of Israel wrote, "Since the previous interest rate decision (May 23), the shekel has weakened by 5.1% against the US dollar, by 2.9% against the euro, and by 3.6% in terms of the nominal effective exchange rate.
Psagot Investment House chief strategist Ori Greenfeld said, "In our estimation, with the high inflation environment in Israel, and the high volatility on world markets, there is a danger of the continued weakening of the shekel, and due to the switching of attention from the shekel to domestic inflation, the Bank of Israel must adjust the pace of rate hikes to global developments."
Published by Globes, Israel business news - en.globes.co.il - on July 5, 2022.
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