While the renewed escalation between the US and Iran is intensifying, the shekel-dollar exchange rate continues to move further away from the NIS 3/$ threshold and is already trading at NIS 3.06/$ - a level not seen since the beginning of April.
The shekel has been weakening for some time, among other things, due to low inflation and interest rate cut expectations; the intervention of the Bank of Israel, which has purchased foreign currency in recent months; the strengthening of the dollar worldwide; and the sharp declines on Wall Street, which has forced Israeli institutional investors to hedge their exposure to foreign exchange. On top of all this, there was the US memorandum of understanding with Iran, which was perceived by the markets as negative for Israel.
Several analysts spoke to "Globes" about what is behind the continued depreciation of the shekel in recent days.
Mizrahi Tefahot chief strategist Yonie Fanning says, "I think the local risk premium has increased a little. There have been expectations from investors abroad for the Bank of Israel to continue its path of interest rate cuts. In my opinion, they encouraged some of them to hold local bonds, and I believe that following recent events, some of them reduced activity - either exited local bonds or have invested less."
Leader Capital Markets chief economist Jonathan Katz believes that the shekel's depreciation stems primarily from the increasing escalation in the Middle East. "In my opinion, the main reason for the shekel's weakening is an increase in geopolitical risks - that is, the fear that Israel will be drawn into a conflict with Iran. In addition, there are signs of weakness in the stock markets abroad. It seems that institutional bodies are no longer reducing their exposure to foreign exchange, and as the elections in Israel approach, there is a fear of increased social unrest."
Fanning also cites the impact of the hedging activity of institutional bodies. "In recent weeks, there has been this sell-off, volatile trading in US stocks, when the negative correlation between the stock market and the shekel-dollar rate rose and was relatively significant - about 60% against the S&P 500. I think this had a lot of impact on the depreciation we have seen in recent weeks. This high sensitivity to the level of hedging by the institutional bodies is what probably led to this shekel-dollar correlation. I think the institutional bodies were not so hedged and did not want to change their dollar exposures."
Fanning added, "I believe that the current account surplus has been maintained during this period, but also in the June data we saw greater imports of products that may be moderating it. And of course, there is also the strengthening of the dollar. We see the increase in oil prices and the dollar index rising in response. About a fifth of the shekel's movement stems from the movement of the dollar."
Published by Globes, Israel business news - en.globes.co.il - on July 22, 2026.
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