Update: The shekel rollercoaster continues on Monday morning. After losing ground against the dollar yesterday, the shekel is stronger this morning, down 1.09% against the dollar at NIS 3.588/$ and down 1.38% against the euro at NIS 3.680/€, despite the mass unrest and general strike, on the assumption that Netanyahu will pause the judicial reform.
Much has been said about the effects of the drama and uncertainty in Israel's political arena in the crisis caused by the rift amongst Israelis in particular on the volatility of the shekel and foreign fluctuations. Another dramatic expression of the close connection between the legal reform and the Israeli currency was seen last Thursday.
At about 4pm, it was reported that Minister of Defense Yoav Gallant would make an announcement calling for a halt in the judicial overhaul at 8pm. Shortly afterwards it was announced that Prime Minister Benjamin Netanyahu would talk to the nation.
The very hope of halting the legislation and the possibility of an elegant extrication from the political quicksand was enough for the market to express optimism and boost the shekel against the dollar by more than 1.5% within less than 30 minutes to NIS 3.55/$.
By early Thursday evening it became clear that Gallant had canceled his speech and that only Netanyahu would speak. Five minutes into Netanyahu's speech and the market realized that hope of compromise had been premature and that the Prime Minister had no intention of halting the judicial overhaul legislation. The forex market expressed its disappointment immediately, which caused a sharp drop in the shekel against the dollar.
On Friday, the Bank of Israel set the representative shekel-dollar rate up 0.443% at NIS 3.628/$, and the representative shekel-euro rate was set 0.359% lower at NIS 3.914/€. In futures trading today the shekel is strengthening against the dollar, down 0.60% to NIS 3.590/$ and is strengthening 1.65% against the euro at NIS 3.864/€. So what will happen tomorrow morning when the forex market opens.
The market will take time to recover"
IBI Investment House chief economist Rafi Gozlan told "Globes," "The upheaval is not only effecting the foreign exchange market, we see the expectation of a compromise also in Israel's increased risk premium, in bonds and stocks."
Gozlan stresses that a compromise would lead to well-being in the market, but in the long term it will take time for the market to return to the situation it was in before the political upheaval and again express similar confidence in the Israeli market.
Thursday was not the first time this month that the foreign exchange market demonstrated excessive volatility within a few hours due to developments in the political arena. In the hours leading up to President Isaac Herzog's speech at the beginning of the month and his expected announcement of a compromise outline, there was hope that caused optimism in the market and the strengthening of the shekel. Then too the optimism evaporated and when the coalition responded by rejecting the president's compromise, the shekel immediately weakened again. If that wasn't enough, at the same time on the same day, the dollar itself suffered from instability and plunged by about 1.1% and rose by almost a percent again a few hours later.
Stormy times can be expected on the forex market this week not only because of the legislation being discussed from tomorrow in the Knesset on the makeup of the panel that chooses Supreme Court judges, but also because of the international turbulence caused by troubled banks in the US and Europe.
Published by Globes, Israel business news - en.globes.co.il - on March 26, 2023.
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