The shekel is again weakening against the dollar and against the euro today. In afternoon inter-bank trading, the shekel-dollar rate is 0.38% higher at NIS 3.782/$, and the shekel-euro rate is 0.24% higher at NIS 4.111/€.
Yesterday, the Bank of Israel set the representative shekel-dollar rate up 0.4% from Monday, at NIS 3.768/$, and the representative shekel-euro rate was set 0.178% lower at NIS 4.101/€. The shekel is trading at rates against the US dollar not seen since mid-November. Since the start of 2024, the shekel has depreciated over 5% against the dollar.
Mizrahi Tefahot Bank chief economist Ronen Menachem says that on the local level there are three reasons for the shekel's depreciation. Rising security escalations in the region, questions remaining about the 2024 budget, and the lower than expected inflation in Israel and speculation about another interest rate cut.
At the same time enthusiasm is cooling over rate cuts in the US, thus strengthening the dollar on world markets, including against the shekel. Yesterday Federal Reserve governor Christopher Waller said that the US is "within striking distance" of reaching the annual inflation target of 2% but then he added, "I see no reason to move as quickly or cut as rapidly as in the past."
Bank Leumi head of markets strategy Kobby Levi said, "Waller's announcement about caution in the pace of interest rate cuts, balanced some of the disappointment from the Empire Index figure (which indicates production in New York State) which was lower than expected, and raised expectations of a sharp interest rate cut by the Fed."
Levi adds that European Bank president Christine Lagarde, also announced that interest rates in the Eurozone will fall in the summer. Investors in both Europe and the US were expecting more drastic reductions than central bank executives are planning. According to Levi, the foreign exchange market "has had volatile trading in volatility due to the data and announcements, and the volatility is expected to continue."
Published by Globes, Israel business news - en.globes.co.il - on January 17, 2024.
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