The shekel is currently the world's second strongest currency according to a weighting of the main indices for assessing currency prices, Deutsche Bank strategic foreign currency analyst Dr. Gautam Kalani wrote last week in his review of the shekel exchange rates. He says that the shekel has appreciated 6.1% against the effective basket of currencies (the currencies of Israel's main trading partners) over the past 12 months.
Deutsche Bank is recommending short positions on the shekel to investors, after the shekel returned to historically high levels. Deutsche Bank issued a similar recommendation in late June, pushing down the shekel. In recent days, the Israeli currency has strengthened again, and is nearing its all-time high from June.
Deutsche Bank believes that the Bank of Israel will again step up its intervention in the forex markets, after sharply cutting its purchases of foreign currency in recent months. According to Kalani's analysis, the world's most expensive currency is the Chinese yuan.
The shekel is strengthening despite continued purchases of foreign currency by the Bank of Israel (the Bank of Israel's foreign currency reserves have already crossed the $110 billion barrier), even though the Bank of Israel's 0.1% interest rate is more than 1% lower than the US Federal Reserve's 1.25% interest rate, and even though the Bank of Israel is not projecting a rise in the interest rate before late 2018, while the Federal Reserve is planning four interest rate hikes during the same period.
Kalani told "Globes" that a large volume of speculative activity was one of the reasons for the strengthening of the shekel in the first half of the year. As Kalani predicted, the weakening of the shekel in July-August was only a technical correction, and the shekel resumed its strengthening pattern. "The shekel has been the best performer in EM FX over the past two months," Kalani writes in his current review, which was sent to investors late last week. According to the indices used by Deutsche Bank, the shekel is overpriced by 9.2-10%.
Deutsche Bank believes that core inflation in Israel, which represents prices of non-volatile commodities and services (excluding goods such as fuel and food, whose prices fluctuate greatly), is still deep in negative territory.
Published by Globes [online], Israel Business News - www.globes-online.com - on November 5, 2017
© Copyright of Globes Publisher Itonut (1983) Ltd. 2017