The Bank of Israel set the shekel-dollar representative rate up 1.088% today at NIS 3.066/$. The Israeli currency, which is at its weakest for two months against the US dollar continued to lose ground in afternoon inter-bank trading and went above the NIS 3.07/$ threshold for the first time since July.
Several forces are driving this trend. Interest rate differentials vis-à-vis the US, rising bond yields, Middle East tensions, and the global strengthening of the dollar. The question now is whether this is a short-term move or the beginning of a more prolonged period of shekel weakness.
Karni Family Office partner and hedge fund manager Dr. Ilan Gildin wrote yesterday that the shekel’s weakening against the shekel reflects a combination of monetary and geopolitical factors. The Federal Reserve's interest rate hike two weeks ago, as well as market pricing for continued monetary tightening, widened interest rate differentials in favor of the dollar and increased hedging costs. "At the same time," he wrote, "continued Houthi attacks on Saudi Arabia and fears of an escalating conflict with Iran are raising the regional risk premium and reinforcing the dollar's status as a safe-haven currency. Globally, the dollar has also recently benefited from high US bond yields and expectations of further interest rate hikes."
Traditionally, another predictor of the shekel's movement has been the trend in US stock indices, which, according to futures contracts, are set to fall today. The reason for this lies in the behavior of institutional investors. They allocate a significant portion of their investments abroad but maintain limited exposure to foreign currency, creating a gap that requires hedging. When the US stock market rises, the value of these institutions' foreign assets increases, as does their dollar exposure. To return to their desired exposure level, they are compelled to sell dollars and buy shekels. The result is a direct correlation: when overseas markets rise, the shekel strengthens, and when they fall, it weakens.
It’s not the shekel, it’s the dollar
Altshuler Shaham Financial Services founder and CEO Yossi Menashe observes that this morning's trading illustrates how developments in the Middle East are currently spreading from the energy market to the bond and currency markets. "On Friday, optimism regarding talks between the US and Iran contributed to a drop in oil prices and yields; this morning, however, we are seeing a reversal after those talks failed to yield an agreement. Oil is up about 1.8%, and the yield on the 10-year US Treasury note has returned to the 5.21% range.
"For the Fed, these developments are significant because energy prices directly impact the inflation outlook. Recent signals from senior central bank officials have remained hawkish; if oil prices stay elevated for a prolonged period, it will be harder to foresee a significant decline in expectations for further monetary tightening. At the same time, the US deficit and the scale of bond issuance continue to exert upward pressure on long-term yields, independent of the impact of energy prices."
In this context, it is worth noting that the Fed raised interest rates to 4% this month, thereby widening the interest rate gap between Israel and the US - a gap that could widen even further.
Regardless of the shekel, the dollar itself is also strengthening. The DXY index, which measures the dollar's value against major global currencies (such as the euro), has reached a more-than-two-month high (101 points).
In the short term, Gildin expects the exchange rate to remain volatile. However, he estimates that Israel's current account surpluses and the Bank of Israel's substantial foreign currency reserves limit the potential for depreciation. Conversely, a calming of tensions in the Gulf region could shift pressure back toward an appreciation of the shekel.
Published by Globes, Israel business news - en.globes.co.il - on September 28, 2026.
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