Foreign currency trading was heavy today as the public and institutional investors continued to rush on the dollar.
For the first time since the accelerated devaluation began, provident funds and insurance companies made extraordinary demands for dollars. Also for the first time, foreign banks, especially London-based ones, showed lively activity as well. The heavy buying does not indicate a panic.
The shekel posted a new record low against the dollar today, weakening 0.81% from yesterday's rate, to NIS 4.473/$. In interbank trading, the dollar traded at an even higher level of NIS 4.485/$, a 1.08% devaluation of the shekel. Heavy realization in advance of setting the new representative rate pushed the dollar down slightly further against the shekel. The dollar has risen NIS 0.263, a cumulative shekel devaluation of 6.2% within two weeks.
The shekel also fell against the euro, falling another 1.03% to NIS 4.0474/€. The shekel has fallen 3.6% against the European currency in two days. The shekel also fell sharply, by 0.86%, against the basket of currencies to NIS 4.5437, and is now 8.4% above the lower boundary of the fluctuation band.
In the wake of the interest rate cut, billions of shekels have apparently been diverted from shekel instruments (the shekel mountain). The money is being directed to foreign currency instruments, mostly to mutual funds specializing in foreign currencies.
Average daily foreign currency trading in cash reached a record $2 billion this week. Foreign banks accounted for $220 million and the Israeli business sector accounted for $1.5 billion, with the rest carried out by Israeli banks.
Published by Israel's Business Arena on 3 January 2002