The shekel is weakening today against the dollar and against the euro. In late morning inter-bank trading, the shekel is 0.47% higher against the dollar at NIS 3.793/$ and 0.91% higher against the euro at NIS 4.052/€.
Yesterday, the Bank of Israel set the representative shekel-dollar rate up 0.133% from Tuesday, at NIS 3.775/$, and the representative shekel-euro rate was set 0.172% higher at NIS 4.015/€.
Israel-Iran tensions and the strength of the dollar worldwide have the exchange rating touching NIS 3.80/$ for the first time since October 2023.
Mizrahi Tefahot Bank chief economist Ronen Menachem says that the shekel depreciation, "Reflects the continued tension and concerns ahead of Israeli retaliation against Iran and a further escalation in the north. These concerns are reflected in falls on the stock market, which were across the board yesterday and strengthened towards close of trade together with an accelerated depreciation of the shekel."
The exchange rate has been especially volatile since the end of last week when rumors of an Iranian attack against Israel began but according to Menachem the depreciation of the shekel stemmed from a different direction. He says that although reports of Iran preparing to attack Israel may have been a catalyst for the continued falls, he stresses, "Tensions and sensitivities are high in any case and the forex market usually reacts stronger and faster. This is also expressed in high intra-day volatility."
Bank Leumi head of markets strategy Kobby Levi tells "Globes," "Throughout Wednesday the shekel maintained stability around NIS 3.76-3.77/$ and NIS 4.00-4.02/€, but in the final two hours due to low liquidity and demand for foreign currency from foreigners, the shekel weakened even to NIS 3.80/$."
Levi pointed out that in recent days the credit spread of the State of Israel's bonds has expanded again, due to the geopolitical escalation, but the shekel- dollar exchange rate had difficulty breaking above the NIS 3.78/$ rate due to foreign exchange supply that was waiting for the rates. Levy added that: "In our estimation, the supply of foreign exchange waiting to be sold by local players will strengthen as the rates rise."
US dollar strengthening against foreign currencies
The US dollar is not only strengthening against the shekel, and is demonstrating strong performance against the world's other currencies. According to the DXY Index the dollar is at its strongest against the world's currencies since November. Menachem says that the strengthening of the dollars worldwide, Follows the words of US Federal Reserve chair Jerome Powell and the strong private consumption figures in the US, which makes interest rate cuts less likely."
Levi explains that the Israeli defense industry sector has proven its advantages on the battlefield, and says, "This is expected to be reflected in the external accounts in a way that will support the shekel in the long term and after the negative sentiment has subsided."
In the meantime, eyes are on the Bank of Israel, which since the first months of the war has not intervened in the foreign exchange market at all. The central bank has not taken the 'threat' of intervention in the foreign exchange market off the table and there is a likelihood that it will use a plan to sell $30 billion of its huge foreign exchange balances. After the outbreak of the war, the Bank of Israel only sold $8.5 billion of its forex reserves.
On whether the Bank of Israel will intervene in the foreign exchange market, Menachem says that for now the shekel depreciation can be "explained" and therefore "It is likely that the Bank of Israel will not act now to moderate the depreciation. However, there is no doubt that it closely follows the foreign exchange market and has already shown not long ago that it can influence what happens there, if and when it thinks that this may destabilize the markets."
Published by Globes, Israel business news - en.globes.co.il - on April 18, 2024.
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