Israel's foreign exchange market remains extremely volatile amid domestic political and regional geopolitical tensions. In afternoon inter-bank trading, the shekel-dollar rate is 0.97% higher at NIS 3.743/$ and the shekel-euro rate is 1.33% higher, at NIS 4.165/€.
On Friday the shekel strengthened sharply. The Bank of Israel set the representative shekel-dollar rate down 1.226% on Friday, at NIS 3.707/$, and the representative shekel-euro rate was set 0.576% lower at NIS 4.110/€.
The shekel has been weaker today and the Tel Aviv Stock Exchange down sharply amid reports that Prime Minister Benjamin Netanyahu is in talks to bring Gideon Sa'ar into the government, and if he succeeds he could fire Minister of Defense Yoav Gallant. These developments cannot be divorced from Gallant's more circumspect approach to war with Hezbollah and Netanyahu's more hawkish statements on the matter.
Leader Capital Markets chief economist Yonatan Katz explains that firing Gallant, " "Strengthens the assessment that we will not reach a ceasefire and will probably start another campaign in the north, which may bring about a further downgrade and therefore lead to market declines." He believes, the option of a further increase in Israel's risk premium creates a negative sentiment among investors. As long as the uncertainty increases, and the change of the defense minister will contribute to this, the local markets will weaken and the dollar will strengthen."
Energy Finance CEO Yossi Frank says, "Gallant's removal is interpreted by market players as political chaos and an increased chance of war in Lebanon, but there is nothing in the market except the activity of speculators betting on chaos. Nobody buys dollars except them. The institutions sell, exporters sell, the dollar is weakening globally, the index (CPI) was supposed to lead to a significant strengthening of the shekel. But when the market is in a mess, anyone can do what they want in it."
All this comes together with negative macroeconomic data. Inflation has risen to 3.6% over the past 12 months, after the August Consumer Price Index (CPI) was an unexpectedly high 0.9%. Today, the Central Bureau of Statistics revised sharply downwards the growth figures for the second quarter to an annualized 0.7% from 1.2% in its first estimate. This means that Israel’s per capita GDP fell by an annualized 0.9% in the second quarter of 2024.
Published by Globes, Israel business news - en.globes.co.il - on September 16, 2024.
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