The shekel is again weakening against the dollar today. In afternoon inter-bank trading, the shekel-dollar rate is 0.37% higher at NIS 3.767/$, and the shekel-euro rate is 0.18% lower at NIS 4.102/€.
Yesterday, the Bank of Israel set the representative shekel-dollar rate up 0.671% from Friday, at NIS 3.753/$, and the representative shekel-euro rate was set 0.516% higher at NIS 4.109/€. The shekel is trading at rates against the US dollar not seen since November. Since the start of 2024, the shekel has depreciated nearly 5% against the dollar. The weakness of the shekel is the top priority of the Bank of Israel, which cut the interest rate at the start of the month, partly due to the strength of the shekel at the end of 2023.
Dollar strength worldwide and December CPI are reasons for the shekel's weakness
Bank Leumi head of markets strategy Kobby Levi tells "Globes," "From this morning foreign institutions have been buying dollars, mainly as part of the global trend of the strengthening of the dollar." Levi explains that it is possible that the escalation in the Middle East after the attacks last night have contributed to this. "The shekel weakened in a much more limited way against the euro, as part of the influence of the regional tension."
Mizrahi Tefahot Bank chief economist Ronen Menachem says that on the local level there are three reasons for the shekel's depreciation. "Firstly, the December Consumer Price Index (CPI), which was again at the lowest point of expectations and restored media speculation about another interest rate cut next month." Menachem stresses that although this is still not the leading scenario, a CPI like December impacts the market.
In addition there is the security escalation over the past day, expressed on all fronts. "We see the tension threshold between the US and UK with the Houthi rebels rising, and detrimentally influencing appetite for risk both with us and on a global level."
There are also continuing questions over the 2024 budget, which has moved on for Knesset approval, and reflects a high fiscal deficit of 6.5%. "The market is concerned, among other things, what will be the response of the credit rating agencies. After all, as of today, they are focusing on negative consequences for Israel's rating."
The dollar which has strengthened worldwide, is expected to also respond to the ongoing election process in the US which could certainly lead to a change in the currency's direction, however, Menachem stresses, "The dollar is considered a safe haven currency and if and as the geopolitical tensions increase, it may strengthen in light of increased demand."
Published by Globes, Israel business news - en.globes.co.il - on January 16, 2024.
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