The shekel is at it weakest against the US dollar for three months. The representative shekel-dollar exchange rate was set 0.79% lower on Friday, at NIS 3.5660/$. Against the euro, the representative rate was set 0.16% higher, at NIS 3.7937/€.
Within a month, the shekel has weakened against the dollar by nearly 5%. Yossi Fraiman, CEO of financial consultancy group Prico, explains this by two main reasons.
Last week, the global US Dollar Index (DXY), which measures the value of the dollar against a basket of currencies, reached a six-week peak. "Comments about the need to halt inflation by senior US Federal Reserve officials along with high Consumer Price index readings and the January retail sales figures led to declines on Wall Street, which in turn led Israeli financial institutions to go back to buying dollars."
In general, there is a high correlation between the shekel-dollar exchange rate and the US stock market. When the US market rises, boosting the dollar value of their holdings in US stocks, Israeli institutions will sell dollars and buy shekels on the foreign exchange market in order to balance their dollar positions, and conversely, when the US market falls, they will sell shekels and buy dollars.
At the same time, Fraiman says, the stormy controversy over the Israeli government’s judicial reform is putting pressure on the local currency. "In Israel, money continues to flow out of the local banks, and the fear remains on the part of investors of the effect of the reform on a large range of issues," he says.
According to Fraiman, the test for traders will come at the NIS 3.62 mark, at which the depreciation of the shekel has halted recently.
Published by Globes, Israel business news - en.globes.co.il - on February 19, 2023.
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