The shekel has strengthened sharply against the US dollar this morning, and the assessment on the market is that the main reason is the substantial progress reported on a deal to obtain the release of Israeli hostages held by Hamas and a ceasefire in the Gaza Strip. The dollar-shekel exchange rate is currently at NIS 3.6328/$, 1.07% lower than yesterday’s representative rate. In the past few months, the shekel has been one of the strongest currencies in the world.
The US dollar has strengthened dramatically against other currencies. The DXY index, which measures the dollar against a basket of other currencies, has climbed 6% in the past three months, but the shekel-dollar rate has actually fallen by more than 3.5% in the same period. There are several reasons for that, primarily a decline in Israel’s risk premium against the background of the ceasefire in Lebanon.
Bank Hapoalim chief financial markets strategist Modi Shafrir explains the shekel’s recent strength by the prospect of a hostage release deal being signed soon.
"It would appear that the market believes that the ceasefire that will be signed (provisional for the time being) will lead to pressure from the Trump administration to end the war in the Gaza Strip, which in turn will lead to a further significant decline in Israel’s risk premium. The risk premium has already fallen sharply since November, although it is still high - on world markets Israeli government bonds are still traded at prices similar to those of companies rated BBB-," Shafrir says.
A market player to whom we spoke agrees that the trigger for the current appreciation of the shekel is the ceasefire agreement, but he is less optimistic. He says that investors around the world are pricing several steps ahead, such as political changes in Israel or a possible agreement with Saudi Arabia. "There have been several articles on Bloomberg on supposed renewed contacts with Saudi Arabia, so the market is running ahead with dreams of a new Middle East. In my opinion, the foreigners are struggling to understand the geo-political situation, and are not taking into account the constitutional story that tore the country apart in 2023," he says.
Gat Megiddo, CEO of investment house Finessa Capital, says, "In the past few months we have seen that the shekel has hardly participated at all in the global weakness of all currencies against the US dollar. On the one hand, this stems from the decline in Israel’s risk premium, and on the other from a flow of money back to the Israeli market on the part of both local institutions and foreign investors.
"It’s important to remember that, in the end, Israel is an exporting country with a positive trade balance, and the shekel’s natural tendency is to strengthen against other currencies. It should be recalled that within the last few days it was reported that the fiscal deficit for 2024 will be slightly below the projected level, which helps to strengthen the shekel, and that the [hostage] deal is basically perceived as a positive event, although it is also an isolated event that it is hard to assess how exactly it will end and what the timetable will be."
Published by Globes, Israel business news - en.globes.co.il - on January 14, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.