The foreign exchange market is again volatile today. The shekel has weakened significantly against the euro, with the rate currently 1.36% above yesterday’s representative rate, at NIS 3.9899/€. Against the US dollar, the shekel has weakened more moderately today. The shekel-dollar rate is currently up 0.62%, at NIS 3.6262.
Sharp volatility in shekel exchange rates has become the norm in the past few months. Since the beginning of the year, the Israeli currency has weakened by 6% against the euro and by 3% against the US dollar.
IBI Investment House chief economist Rafi Gozlan says, "The shekel is very sensitive to develops on the legal system legislation. The declarations that the legislation will move forward without a consensus have led to an immediate rise in the risk premium, which quickly finds expression in the foreign exchange market. The deterioration in the security situation in the past few days may also be having an effect. The shekel has weakened this week even against the dollar, despite the weakness of the dollar on world markets. The weakening against the euro is sharper, amounting to nearly 3% over the past week."
Alex Zabezhinsky. chief economist at Meitav Dash, says, "The weakening of the shekel against the euro is a result of a combination of the strengthening of the euro against the dollar, with the rate reaching more than 1.1 dollars to the euro (because of expectations of an interest rate hike in Europe), and the weakness of the shekel against the dollar for security and political reasons in Israel."
Prico Group CEO Yossi Freiman addas, "The shekel-euro rate is set on the basis of a combination of the shekel-dollar rate and the dollar-euro rate. The legal system legislation is causing volatility in exchange rates over a wide band. As long as uncertainty prevails, the potential for appreciation is limited. Furthermore, the expectation of a rise in dollar interest rates following Federal Reserve chairman Jerome Powell's testimony in Congress yesterday could cause volatility on the stock markets, leading to action by the financial institutions, which will have to adjust their hedging portfolios by buying dollars."
Shy Datika, founder and CEO of asset trading platform INX, says, "The shekel-euro rate is returning to the NIS 4/€ level. An inverse pincer movement of weakness of the dollar against the euro and strengthening of the dollar against the shekel has caused sharp depreciation against the euro in the past week. The weakness of the shekel weighs on importers from Europe, and is causing a rise in prices of products imported from the continent.
"The strengthening of the euro against the dollar arises from the view that inflation in Europe is stronger and stickier than was thought until May, which will mean a rise in the euro interest rate. In an inverse movement and in contrast to the correlation in the past (the strengthening of the euro against the dollar would be offset by weakness of the dollar against the shekel), we are seeing the shekel 3% weaker against the dollar. The weakening of the shekel stems entirely from the legal system legislation being brought back unilaterally in the Knesset Constitution, Law and Justice Committee, without the consensus that the prime minister promised to the credit rating agencies. The shekel exchange rate against the dollar and the euro has become a barometer of the capital market and of direct sentiment towards progress on the legal system legislation."
Published by Globes, Israel business news - en.globes.co.il - on June 22, 2023.
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