The shekel is again strengthening sharply. In late morning inter-bank trading, the shekel-dollar rate is 1.07% lower at NIS 3.609/$, and the shekel-euro rate is 1.04% lower at NIS 3.998/€. The dollar is trading at its weakest against the shekel since July and the euro is trading at its weakest against the shekel since June.
Yesterday, the Bank of Israel set the representative shekel-dollar rate up 0.137% from Tuesday, at NIS 3.648/$, and the representative shekel-euro rate was set 0.128% higher at NIS 3.990/€.
The shekel has been making a remarkable recovery over the past two months. At the end of October, the Israeli currency had sunk to NIS 4.08/$, following the Hamas atrocities on October 7 and the outbreak of the war. But by last week the shekel had strengthened by 10% to NIS 3.70/$ and is now heading for NIS 3.60/$.
On the eve of the war the shekel was trading at NIS 3.85/$. As the Israeli currency continues to strengthen, it is becoming apparent that the market was more concerned about the social rift in Israel caused by the government's planned judicial reform than it is by the war with Hamas.
EFG foreign exchange strategist Alim Remtulla sees the shekel strengthening to NIS 3.55-3.60/$ in the first quarter of 2024, which among other things will bring Israel institutional investors back to the Tel Aviv Stock Exchange.
The Bank of Israel began the shekel recovery by announcing, immediately after the start of the war, a plan to sell up to $30 billion in foreign currency. This calmed the markets and in practice the Bank of Israel has to date only sold $8.5 billion in foreign currency to moderate the weakening of the shekel, $8.2 billion of that amount in October.
With annual inflation in Israel now down to 3.3%, some analysts now expect the Bank of Israel Monetary Committee headed by Governor Prof. Amir Yaron to cut the interest rate from 4.75% at its next meeting on January 4. Others insist that the ongoing strengthening of the shekel reflects the belief that the rate will not be cut next month. In any event, looking further ahead, the interest rate is unlikely to impact the shekel as the US Federal Reserve is also expected to cut interest rates early in 2024.
Published by Globes, Israel business news - en.globes.co.il - on December 21, 2023.
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