After reaching its strongest for two years against the dollar yesterday, the shekel is weakening today against the US currency, although firm against the euro. In morning inter-bank trading the shekel-US dollar exchange rate is up 0.36% at NIS 3.554/$, and the shekel-euro rate is up 0.01%, at NIS 3.696/€.
Yesterday, the Bank of Israel set the representative shekel-dollar rate down 1.172% from Tuesday, at NIS 3.541/$ - its strongest since February 2023 - and the representative shekel-euro rate was set 0.415% lower at NIS 3.696/€.
Bank of America has published a forecast about the Israeli currency. The bank's analysts expect the shekel to continue to strengthen if the ceasefire agreements are fully implemented: "Recent ceasefire agreements in the Israeli region have contributed to the strengthening of the shekel. If these agreements are fully implemented and become permanent, we may see a further reduction in the risk premium. The Bank of Israel's plans so far indicate a first interest rate cut in the third quarter of the year. However, we see a chance of bringing it forward to the second quarter if the ceasefire is maintained."
Bank of America added, "A 1% VAT increase over the next year will keep inflation above the upper limit of the target range, but we believe that the Bank of Israel may have room to cut further, if inflation continues to surprise downwards.
"It is still difficult to see how quickly supply disruptions will be resolved compared with the recovery in demand due to positive sentiment. The Bank of Israel will probably choose to be on the cautious side. We expect two interest rate cuts this year and see a risk of another cut if inflation improves faster than expected," Bank of America noted.
Published by Globes, Israel business news - en.globes.co.il - on January 23, 2025.
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