The shekel has been weakening today against the world's major currencies in volatile trading. This afternoon the Bank of Israel set the shekel-dollar exchange rate up 0.913% at NIS 3.794/$ and set the shekel-euro rate 1.192% higher at NIS 4.066/€. In late afternoon inter-bank trading the shekel weakened by a further 0.2% to NIS 3.801/$.
Bank Hapoalim chief strategist Modi Shafrir told "Globes" that foreign exchange trading is very volatile due to the low trading volumes during the holiday so that every small fluctuation in the exchange rates strongly affects trading.
Shafrir explains that the main reason for the weakening of the Israeli currency, against both the euro and the US dollar, is the geopolitical picture. "The tension with Iran has still not abated and we are still hearing about the possibility of this front heating up and of course there is also the volatility with Hezbollah and the expectation of military action in Rafah. Iran's proxy organizations in the region continue to influence the sentiment in the markets."
Beyond that, Shafrir says, "Overseas investors are buying dollars and euros, apparently also due to declines in the world's stock markets, in addition, the effect of the S&P downgrade last week is causing late waves to hit and contributing to the negative environment around the shekel." Despite this, Shafrir stresses that Israel's risk premium of Israel, as priced in dollar bonds actually fell over the last week (since Israel's attack on Iran).
"The Israeli market is not cut off from normal trading procedures"
Energy Finance CEO Yossi Frank says that forex activity during the holiday proves once again how cut off the market in Israel is from normal trading procedures. "In almost zero trading cycles, the shekel has greatly strengthened and then weakened throughout the holiday. All this happened in complete contrast to the weakening of the dollar in the world."
The strengthening of the dollar against the shekel comes at a time when the dollar is weakening against the world's major currencies, as a preliminary response to the US GDP figures, which will be published today. At the same time, tomorrow (Friday), the Fed's preferred inflation index (PCE) will be published, and the markets fear that US economic indicators will be ripe for an imminent interest rate cut by the US Federal Reserve.
The depreciation of the shekel may re-stimulate price levels in Israel, which is expected to rise next month due to the increase in milk prices. Therefore, monetary easing in Israel seems only to be moving further away.
Published by Globes, Israel business news - en.globes.co.il - on April 25, 2024.
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