The shekel strengthened again today against the US dollar. The Bank of Israel set the representative rate this afternoon down 0.135% against the dollar at NIS 2.95/$ but up 0.196% against the euro at NIS 3.419/€.
According to Meitav, the shekel has resumed being the world's strongest currency over the past month, contributing to the moderation of inflation in Israel. The Israeli currency strengthened by about 2.5% against the US dollar over the past month. The euro, for example, strengthened against the US dollar by only 1.5% in the same period, and the sterling by 1.8%. The US dollar itself has weakened to its lowest level in about two months.
The positive trend on Wall Street (the S&P 500 rose by more than 3% in the past month) and the weakening of the dollar worldwide come after investors reduced expectations for further interest rate hikes by the Federal Reserve, following weaker-than-expected economic data in the US.
The dollar index (DXY) has been falling for the third day in a row, reaching its lowest level in about two months. Market traders have reduced the probability of an interest rate hike by the Fed next month to only about a third, compared to about 75% at the end of July.
High real returns in Israel
In Israel, inflation has fallen to 1.5%, below the center of the Bank of Israel’s annual 1%-3% target range, but its downward trend is set to end, estimates IBI's chief economist Rafi Gozlan.
He says, "The moderation in recent months to below the center of the target range has been partly due to temporary factors, primarily the strengthening of the shekel, so the gradual fading of this effect, along with a tight job market with excess demand, is expected to lead to an increase in the inflation environment later this year. Therefore, we estimate that inflation is expected to climb back towards the center of the target range in the last quarter of the year, and to rise to 2.2% in the coming year."
Gozlan adds, "On the other hand, the real interest rate derived from actual inflation and inflation expectations is relatively high and ranges around 1.75%-2%, and in addition, in recent days the shekel has resumed its appreciation to levels below NIS 3/$." In other words, this real return makes shekel-denominated assets more attractive and attracts demand for the Israeli currency.
The July inflation data published on Friday showed a monthly increase of 0.3% in June and a slight decrease in the annual inflation rate, to 1.5% compared with 1.6% in June. The Bank of Israel's response will come in its upcoming interest rate decision in early September. The interest rate is currently at 3.5%.
Altshuler Shaham Financial Services founder and co-CEO Yossi Menashe believes that the moderation of inflation in Israel to 1.5% increases the likelihood of an interest rate cut by the Bank of Israel. He says, "A step that may narrow the interest rate gap and curb the strengthening of the shekel in the future, with GDP and upcoming growth data being a central pillar in shaping the path."
Israeli GDP jumped 15.4% in the second quarter on an annualized basis (3.6% on a quarterly basis), after a 3.8% decline in the first quarter, which included the war against Iran.
Published by Globes, Israel business news - en.globes.co.il - on August 17, 2026.
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