After depreciating by 6% against the US dollar in February, the Israeli currency has begun March with strong gains. In early afternoon inter-bank trading, the shekel-dollar rate is down 1.11%, at NIS 3.627/$, and the shekel-euro rate is down 0.68%, at NIS 3.865/€.
Yesterday, the Bank of Israel set the representative shekel-dollar rate down 0.136% from Monday, at NIS 3.668/$, and the representative shekel-euro rate was set 0.322% higher at NIS 3.891/€.
Foreign exchange trading in Israel was volatile last month with the shekel trading at its weakest against the US dollar since March 2020 at the start of the Covid pandemic.
It has become clear that the shekel has deviated from its close correlation with global tech stocks since January - strengthening when Wall Street gains as Israeli institutional investors hedge their investments by buying shekels, and vice-versa. The assumption is that the shekel has now been weakening because of the political uncertainty in Israel as the government pushes ahead with its judicial reform.
Citi describes the shekel as being under pressure from "local political noise" and predicts that the Israeli currency could depreciate as far as NIS 3.95/$. Bank of America analysts wrote. "Political noise in Israel doesn't usually impact Israeli assets or economic policy but we believe this time is different. Local sentiment has the potential to cause domestic investors to shift their portfolios away from shekel-based assets."
Goldman Sachs also blames the political turmoil for the shekel's poor performance but Wells Fargo insists that the weakness of the Israeli currency is at odds with strong economic fundamentals. The banks sees the shekel strengthening to NIS 3.4/$ by the end of the first quarter.
Published by Globes, Israel business news - en.globes.co.il - on March 1, 2023.
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