The shekel strengthened against the US dollar and the euro at the opening of trading this morning. The shekel-dollar exchange rate is currently down 0.53% in comparison with Friday’s representative rate, at NIS 3.6416, while the shekel-euro rate is down 1.3%, at NIS 3.9964/€.
The shekel has been volatile on the foreign exchange market in recent months, against the background of the government’s plans for overhaul of Israel’s judicial system and the protests that they have ignited. Against the US dollar, the shekel has weakened by about 4% so far this year.
A factor in recent trading in the shekel has been tense anticipation of the release by Moody’s of its review of Israel’s sovereign credit rating. Against the basket of currencies, the shekel weakened by 3.2% last week, despite a rise in US stock market indices, with which the shekel is usually positively correlated. In the event, in its report released last Friday, Moody’s left Israel’s rating unchanged at A1, but downgraded the rating outlook from "Positive" to "Stable".
"I was more worried about a severe warning than about an actual rating downgrade," one foreign exchange market player said after the Moody’s report was released. "In fact, nothing came of it, and so as far as I am concerned the event means that the shekel-dollar rate should fall and restore the risk premium to where it was at the beginning of last week." The same source said that market estimates are that without the judicial system legislation the shekel-dollar rate would be about NIS 0.25 lower than it is.
According to Bank Hapoalim chief financial markets strategist Modi Shafrir, the shekel’s direction will depend on the outcome of the talks between the government and the opposition on the judicial system reform. "If the coalition and opposition manage to reach agreement on the legal reform, the shekel will strengthen sharply. The institutions that Moody’s stated in its rating outlook report had been weakened will be strengthened, which is important for the Israeli economy."
On the other hand, Shafrir raises the fear that "if the negotiations fail, the damage to the institutions will be greater, and the shekel could weaken to NIS 3.8/$ or even higher than that."
Published by Globes, Israel business news - en.globes.co.il - on April 17, 2023.
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