The shekel has continued to weaken this morning. Yesterday, the shekel-dollar representative rate was set 2.41% higher, at NIS 3.6490/$, and the shekel-euro representative rate was set 2.14% higher, at NIS 3.8886/€. In today’s trading so far, the shekel-dollar rate is up a further 1.1%, at NIS 3.6891/$, and the shekel-euro rate is up 1.08%, at NIS 3.9306/€.
Yields on ten-year Israel government bonds are up by nearly 20 basis points at 3.97%, overtaking the yield on the equivalent US Treasury bond, which is 3.94%.
IBI Investment House chief economist Rafi Gozlan writes in his market review, "There is no doubt that fears of the consequences of the blow to the legal system being promoted by the government are liable to be translated into accelerated depreciation of the shekel."
Gozlan says that the depreciation of the shekel makes reaching the inflation target range more distant, and that this was one of the factors that made the Bank of Israel raise its interest rate by 0.5% on Monday rather than by 0.25%.
Roi Kadosh, chief investment manager at Hachshara Insurance Company, says, "When the interest rate is raised, we would expect the shekel to strengthen, and we are seeing the opposite movement," adding, "The uncertainty relates to reports by foreign news agencies such as Bloomberg of the tweet by Minister of Foreign Affairs Eli Cohen calling on Minister of Finance Bezalel Smotrich to interfere with the independence of the Bank of Israel to make it stop raising interest rates. That caused nervousness."
Prico Group CEO Yossi Fraiman said yesterday, "If the shekel-dollar rate consolidates above NIS 3.6/$, this could be a sign of significant developments beneath the surface. Investors and technology companies are transferring money out of Israel. Depreciation of the shekel will further fuel inflation and entail another interest rate hike by the Bank of Israel in its next decision on April 3. Unless there is agreement on the key issues, particularly issues connected to the independence of the courts and preservation of a mechanism of separation of powers, the shekel-dollar rate, if it breaks through the NIS 3.7/$ level, could swiftly move towards NIS 4/$ and higher."
It is worth noting that the S&P 500 Index fell 2% yesterday, and the shekel-dollar exchange rate generally shows close correlation with the US stock market. When US stocks fall, Israeli financial institutions with holdings in those stocks sell shekels and buy dollars to balance their currency exposure.
Published by Globes, Israel business news - en.globes.co.il - on February 22, 2023.
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