After rising for a couple of sessions, the representative shekel-dollar exchange rate fell 0.9% on Friday, to NIS 3.63/$, while the representative shekel-euro rate fell 0.45%, to NIS 3.9114/€. The representative rate fell by more than 3% last week. The shekel is at its strongest against the US dollar for six weeks.
Mizrahi Tefahot Bank chief markets economist Ronen Menachem told "Globes": There are several good explanations for the strengthening of the shekel. First of all, trading in the foreign exchange market on Fridays is thin, and there is greater volatility. The recent strengthening trend is reinforced on days like that.
"Secondly, sentiment in the past few days arising from the possibility of agreement to resolve the political crisis is also tending to strengthen the momentum, and is generating optimism in the Israeli market."
At the global level, Menachem explains that expectations of an end to interest rate hikes in the US, together with rises in the S&P 500 Index, which has exited from the bear market, are causing great optimism on world markets and leading to depreciation of the US dollar.
What is likely to happen next? "It’s important to remember that the local market is still very volatile and subject to development on the political front, so that what is happening on the market has to be treated cautiously; any event could cause another change of direction," Menachem says.
"The exchange rate has served as a barometer recently of the confidence of the financial markets in the Israeli economy, and of the degree of risk that steps will be taken in the judicial overhaul without broad agreement," says Chen Herzog, chief economist of BDO Consulting Israel.
Market sources completely rule out the possibility that the Bank of Israel has intervened in foreign exchange trading in the past few sessions. "You have to remember," says Herzog, hedging the optimism, "that even after the relative strengthening of the shekel in the past few days, the shekel-dollar exchange rate is still 8% higher than it was a year ago." So despite the shekel’s recent appreciation and the rumors of compromise in the talks on reform of the legal system, the markets are still signaling concern about the risks in the political arena.
Published by Globes, Israel business news - en.globes.co.il - on June 11, 2023.
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