The shekel is continuing to strengthen sharply against the world's major currencies. In late morning inter-bank trading, the shekel is 1.06% lower against the dollar at NIS 3.5696/$ and falling 0.66% against the euro to NIS 3.877/€. The shekel is at its strongest against the US dollar for nearly nine months.
Yesterday, the Bank of Israel set the representative shekel-dollar rate down 1.096% from Monday, before the holiday for the municipal elections, at NIS 3.609/$, and the representative shekel-euro rate was set 1.45% lower at NIS 3.90/€.
On global forex markets the dollar is maintaining its strength with the US currency stable on the DXY index against the world's major currencies.
The strengthening of the shekel stems from domestic factors
Economists believe that the strengthening of the shekel stems from events taking place on the local market. Bank Leumi head of markets strategy Kobby Levi tells "Globes" that foreign currency trade movements stem mainly from a specific type of investor. "Foreign investors are buying the shekel and selling a lot of foreign currency in moves that began yesterday. I believe that the reason is that interest rates were not cut on Monday and this surprised investors around the world."
Levi points out that in the past, we saw that there is a substantial influence on the shekel by the direction of interest rates. "High interest rates strengthen the shekel. But it is not certain that the current exchange rate will remain at this level, mainly due to uncertainty in the markets and the high volatility that characterizes the local currency at this time.
Recently, there have been many media reports about the possibility of a hostage deal being put together. Levi says it is difficult to know whether the rumors about a ceasefire and the return of the hostages is contributing to the appreciation of the shekel. "On the one hand, there are rumors of a ceasefire, but there are also less positive news such as the continuation of the events in the north. All in all, the rumors contribute to the general uncertainty."
Mizrahi Tefahot Bank chief economist Ronen Menachem adds, "We must remember that a possible scenario is a worsening of the fighting in the north, the worsening of the disagreements between the US and Israel as we are currently seeing, and difficulties in approving the budget, and the need for a higher deficit, which will challenge the shekel in the near future."
However, Menachem mentions the Bank of Israel's ability to continue to intervene and stabilize the market if necessary: "The Bank of Israel monitors the direction of the shekel and if it concludes that an excessive devaluation develops, it can use the program to sell foreign exchange reserves. The multitude of factors may indicate high volatility looking ahead."
Published by Globes, Israel business news - en.globes.co.il - on February 29, 2024.
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