A series of meetings held in London last week between Bank Hapoalim representatives and hedge funds and foreign banks left a clear message. Should Gadi Eisenkot succeed in forming a government, investment managers largely anticipate that the shekel-dollar exchange rate will fall to the NIS 3/$ range, according to Bank Hapoalim chief financial markets strategist Modi Shafrir.
Shafrir says "Politics came up in almost every meeting. Foreign investors are well-versed in Israel’s political landscape and are awaiting greater clarity before increasing their exposure."
Shafrir stresses that the stability of a government is just as critical as its actual formation. Estimates regarding Eisenkot’s prospects vary. One economist from a participating firm placed the likelihood of an Eisenkot-led government at 50%, with an equal 50% chance of fresh elections, while others expressed greater optimism. In the positive scenario, a sharp reaction is expected in the foreign exchange market, accompanied by a broad-based decline in risk premiums, bond yields, and basis swaps, alongside a rise in Tel Aviv Stock Exchange (TASE) indices.
A trader at a foreign bank even suggests the possibility of the exchange rate falling below NIS 2.85/$. Conversely, another round of elections could prolong negative sentiment toward Israel, lead to a decline in investment volumes, and in an extreme scenario, even result in sanctions against the economy and the financial system.
Foreign holdings in the local market are currently very low, due to political uncertainty and a difficult year for the hedge fund industry, during which many firms incurred losses in Hungary, Brazil, and Israel. This has a twofold implication. If the positive scenario materializes, there is significant capital available to enter the market, potentially triggering a sharp move; conversely, should that not occur, there are hardly any existing positions that would be forced to close under pressure.
In London, the assessment is that the Bank of Israel will not continue to cut interest rates in the near term.
A second risk worrying investors is a sharp decline in the Nasdaq and in AI-related stocks. The bank explained that the Israeli tech sector is far more diversified today than it was during the dot-com bubble. Therefore, weakness in AI stocks alone is unlikely to cause a dramatic impact on the economy. A sharp decline in the Nasdaq as a whole, by contrast, would negatively impact both the tech sector and the shekel.
Institutional investors were also a focus of the meetings. According to the bank’s assessment, if a government is formed and the shekel strengthens, these institutions will likely reduce their foreign currency exposure, currently at 20%-21%, though not drastically. Conversely, if the likelihood of further elections increases, the shekel would weaken, and institutional investors would increase that exposure. It was further noted that the Bank of Israel might resume purchasing dollars should the shekel appreciate rapidly to a level below NIS 3/$..
On interest rates, the prevailing view in London is that the Bank of Israel will not continue cutting rates in the near term. There is virtually no expectation of a rate cut at the November 23 decision. Some investors believe that the IRS market, where expectations regarding future interest rates are traded, priced in a rate of 3.75%-4% for about five years - a trajectory they consider too high. While many were impressed by the combination of strong growth and low inflation, others questioned how a 7.5% growth forecast for 2027 aligns with an inflation forecast of only 2.1%.
Published by Globes, Israel business news - en.globes.co.il - on November 15, 2026.
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