On Friday morning, the shekel weakened slightly against the US dollar, as the market waited tensely for the scheduled speech by Hezbollah leader Hassan Nasrallah, and for indication whether Hezbollah would enter more fully into conflict with Israel. In the event. Nasralllah’s speech was inconclusive, and gave the impression that all-out war between Israel and Hezbollah was not imminent. This led to a sharp strengthening of the shekel. The shekel-dollar exchange rate fell to NIS 3.92/$. This morning, the trend continues, and is even gathering momentum. The shekel dollar-rate is currently 2.28% lower than the representative rate set on Friday, at NIS 3.897/$. The shekel-euro rate is 1.29% lower, at NIS 4.1874/€.
"Since October 26, the shekel has strengthened against almost all the major currencies," says Discount Bank financial markets strategist Shmuel Katzavian. "No material information was published in Israel that day, except the announcement of the ground incursion into the Gaza Strip. It could be that this reduced to some degree the uncertainty of the waiting period."
It Is not just the security situation tat has impacted the shekel, however; there are also external factors. On Friday, for example, the appreciation of the shekel was boosted by the significant weakening of the US dollar against the basket of major currencies (the DXY index). The main reason for that was the employment report in the US, indicating a higher than expected unemployment rate, and thus supporting speculation about an earlier than expected interest rate reduction by the US Federal Reserve.
Looking ahead at likely developments in the shekel-dollar exchange rate, Katzavian believes the shekel will strengthen in the short term. This is on the assumption that the war will end within a few months, even if it broadens in the meanwhile. "Looking months, or quarters, ahead, the shekel is priced very low (against the basket of currencies, H.S.). This makes a correction next year likely," he says. "Looking a year ahead, a positive trend is expected on world stock markets and an end to the Federal Reserve’s interest rate hikes, and that too will support the shekel against the dollar. At the same time, there is uncertainty over the short-term trend."
Published by Globes, Israel business news - en.globes.co.il - on November 6, 2023.
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