The shekel has resumed its strong gains against foreign currencies. Earlier today, the Bank of Israel set the representative shekel-dollar rate down 1.35% from Thursday, at NIS 3.728/$, and the representative shekel-euro rate was set 1.333% lower at NIS 4.048/€. In futures contracts this afternoon, the shekel-dollar rate was down a further 0.14% at NIS 3.723/$ and the shekel-euro rate was down a further 0.05% at NIS 4.046/€.
The shekel is now trading at rates against the dollar last seen in August, long before the war. The shekel has gained 8% against the US dollar since the start of November and 5% against the euro. Why is this happening?
Mizrahi Tefahot chief market analyst Ronen Menachem tells "Globes" that the strengthening of the shekel against the dollar and euro is due to recent economic data from Israel and the US.
In Israel, Menachem explains, inflation and GDP data published in the past two days "were not were not sufficiently lukewarm to create an understanding in the market that the Bank of Israel is moving towards cutting interest rates soon." In this context, Menachem also notes what the Governor said at the end of last week that the bank continues to focus on inflation and preventing excessive depreciation of the shekel.
But the main strengthening of the Israeli currency stems from the weakness of the US dollar. This is mainly due to reasons external to the Israeli market. On Tuesday, inflation data in the US was published, which indicated a further decrease in inflation in the country and a convergence towards the Federal Reserve's inflation target. The decrease in inflation led the markets to price the expected interest rate cut by the Federal Reserve already in the first half of 2024 and has caused the dollar to weaken against major currencies in the world, and also against the shekel.
Menachem adds that the stock rises on Wall Street this week have also contributed to the change in foreign currency values. "There is an effect of the price increases on Wall Street on the market. There is a positive connection between the US market and the strengthening of the shekel (even if it is less strong than before). Over the last week, there was an increase in the stock indices in the US (especially Nasdaq) and part of this was translated into the strengthening of the shekel."
The final factor is that the Bank of Israel is prepared to sell foreign currency as part of its plan to prevent the depreciation of the currency during the war and stabilize the market. Menachem points out that the market does not know when the bank decides to intervene in the market, if at all: "We do not know the mix of purchases and sales of foreign currency by a Bank Israel, so it can also be part of the equation in the foreign exchange movements this week."
The volume of foreign exchange sales this month will be revealed only at the beginning of December, when the Bank of Israel will publish the foreign exchange balances in its possession. In October, the Bank of Israel sold $8.21 billion in foreign currency, out of up to $30 billion that it has allocated to moderate the shekel depreciation because of the war.
Published by Globes, Israel business news - en.globes.co.il - on November 17, 2023.
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