The shekel has weakened dramatically against the US dollar in this morning’s foreign exchange trading. The shekel-dollar exchange rate started to climb yesterday afternoon after higher than expected US inflation figures were released, and this morning the rate is currently 2.3% higher than yesterday’s representative rate, at NIS 2.4313/$. The shekel-euro rate is up 0.34%, at NIS 3.4227/€, and against sterling the rate is up 0.5%, at NIS 3.95/£.
Leader Capital Markets sees the shekel continuing to depreciate over the next few months. The firm’s chief economist Yonatan Katz writes: "It looks as though the markets will continue to be nervous in the near future, as they digest the prospect of the US Federal Reserve’s interest rate rising above 4% in early 2023 and remaining at that level for an extended period. We assume continued depreciation of the shekel in the coming months. Consequently, we are revising our inflation forecast for the next twelve months from 2.5% to 2.7%."
The tone in the local foreign exchange market is set by the hedging activity of local financial institutions. When global securities markets fall (the S&P 500 Index fell 4.32% yesterday), the exposure to foreign currency of Israeli institutions invested in those markets also technically falls. This compels them to sell shekels and buy foreign currency, chiefly US dollars, in order to remain compliant with pre-set exposure policies. The result is higher demand for dollars, strengthening the US currency against the shekel.
Published by Globes, Israel business news - en.globes.co.il - on September 14, 2022.
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