Shekel gains strongly after Fed U-turn on rate hikes

Shekel Photo: ASAP Creative

After US Federal Reserve Chairman Jerome Powell said there would be no rate increases this year, the stage is set for the shekel-dollar interest rate gap to narrow.

The shekel is strengthening today against the dollar and against the euro. This morning, the shekel-dollar exchange rate is down 0.65% against the dollar at NIS 3.585/$ and down 021% against the euro at 4.091/€.

Yesterday, the Bank of Israel set the shekel-dollar representative rate up 0.055% at NIS 3.608/$ from Tuesday's rate and set the shekel-euro rate up 0.161% at 4.099/€.

The shekel-dollar exchange rate is trading at its lowest level since September 2018 after US Federal Reserve Chairman Jerome Powell yesterday said that there would be no interest rate increases this year. Powell has changed his tune after originally planning three rate hikes in 2019. He said yesterday that his change of plan is due to lower than expected growth in the US economy.

Powell said, "Growth of economic activity has slowed from its solid rate in the fourth quarter. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter.

He added, "It may be some time before the outlook for jobs and inflation calls clearly for a change in policy."

In addition to lower growth, Powell may also have been influenced by scathing criticism last year by US President Donald Trump who described the Fed's interest rate policy as 'crazy.'

The stage is now set for the interest rate gap between the shekel and the dollar to narrow. The Fed raised key US interest rates to 2.25-2.50% in December, a ninth rate hike since 2015. In contrast, the Bank of Israel raised the interest rate by 0.15% in November to 0.25% - its first rate hike since June 2011.

The Bank of Israel is planning one rate hike this year and with the February CPI reading of 0.1%, annual inflation is now running at 1.2%, back in the annual target range of between 1% and 3%, it looks like the hike will be sooner rather than later.

Published by Globes, Israel business news - en.globes.co.il - on March 21, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Shekel Photo: ASAP Creative
Shekel Photo: ASAP Creative
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