Market signals shekel depreciation could return

Shekel-dollar ASAP Creative
Shekel-dollar ASAP Creative

Yesterday's lethal incident on the Lebanese border set off fears that the war could expand, raising Israel's risk premium.

The war has made the foreign exchange market especially turbulent, even in relation to the volatility that we have become accustomed to in the past year. The shekel-dollar exchange rate closed at NIS 3.85/$ on Friday, after several sessions in which the shekel appreciated, bringing it back to the level it was at before the war broke out. 

Yesterday, however, the market began to price in a depreciation of the shekel, following a severe incident on Israel’s northern border in which an anti-tank missile fired from Lebanon hit civilians, among them six Israel Electric Corporation workers who were repairing power lines. The incident raised renewed expectations that the war was likely to spread to the northern front, and fears grew on the market of escalation into a regional conflict. The border incident also affected the stock market in Tel Aviv, which fell sharply, and led a rise in yields on Israel government bonds.

There is no trading on the foreign exchange market on Sundays, but futures contracts on the shekel indicated a weakening of the currency. In this morning’s trading. The shekel-dollar exchange rate is currently up 0.07% in comparison with Friday’s representative rate, at NIS 3.8766/$, and the shekel-euro rate is up 0.29%, at NIS 4.1444/€.

IBI chief economist Rafi Gozlan told "Globes": "The market has started to price in a depreciation of about 1% in trading in the shekel." Gozlan says that the movement in futures contracts yesterday was not large, but that it is difficult to know how the market will respond. "The market will probably seek a larger safety margin because of the worsening of the situation," Gozlan said.

A weakening of the shekel will weigh on the Israeli economy. The Bank of Israel intervened in moderate fashion in the foreign exchange market in October, selling $8 billion in order to stabilize the shekel following the outbreak of war. Last week, it looked as though the central bank had succeeded, but the latest development could mean that the celebrations were premature, and that the Bank of Israel will have to sell more dollars to provide stability after these shocks to the market.

Published by Globes, Israel business news - - on November 13, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Shekel-dollar ASAP Creative
Shekel-dollar ASAP Creative
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