The shekel is weakening against the dollar today and against the euro. In morning inter-bank trading, the shekel exchange rate is up 0.47% against the dollar at NIS 3.553/$ and up 1.13% against the euro at NIS 3.424/€.
Yesterday, the Bank of Israel set the representative shekel-dollar rate up 1.347% from Friday before the Rosh Hashana holiday, at NIS 3.536/$, and the representative shekel-euro rate was set 0.751% lower at NIS 3.385/€. This is the weakest that shekel has been against the dollar since April 2020, at the start of the economic crisis caused by the Covid pandemic, when the dollar was also strong as investors sought a safe haven currency. The shekel has weakened by over 12% against the dollar since the start of the year.
The dollar index is currently at its strongest in 20 years and the US currency has appreciated by 19% since the start of 2022 against the basket of major international currencies - the strongest the dollar has been for 20 years. Relatively speaking the shekel has weakened less against the dollar than other currencies.
In particular sterling is reeling and over the past week the UK currency has reached a new low against the US dollar and is currently trading at $1.05/£. Sterling has been hit by investor dissatisfaction with the new UK government's sharp tax cuts.
Reason for weakening of the shekel
Beyond the strengthening of the US currency worldwide, which has also affected the shekel, the weakening of the Israeli currency is also due to the decline in stock markets overseas. This is because of the high exposure of the Israeli institutional bodies to investments abroad.
When markets rise, their exposure to foreign exchange also increases, and when institutions do not want to increase their exposure, they sell foreign currency, and vice versa - when the markets fall, Israel's institutional investors have to increase collateral (part of the exposure is through futures contracts), and so they purchase dollars, causing the dollar rate to strengthen against the shekel.
Israeli consumers feel the effect of the strengthening of the dollar in their pockets. The dollar has an inflationary impact since there are many things in Israel that are pegged to the dollar, such as air fares, fuel prices, and many services and goods imported to Israel.
Published by Globes, Israel business news - en.globes.co.il - on September 29, 2022.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.