The shekel is again strengthening today against the dollar and against the euro. In late morning inter-bank trading the shekel-dollar exchange rate is down 0.20% at NIS 3.494/$ and down 0.41% against the euro at NIS 3.874/€.
Yesterday, the Bank of Israel set the shekel-dollar representative rate down 0.596% at NIS 3.501/$ from Monday's exchange rate, and set the shekel-euro rate down 1.088% at 3.890/€.
Commenting on the strengthening Israeli currency, Prico Risk Management and Investments CEO Yossi Fraiman said, "At the start of the month we saw deals by companies that had made large spot acquisitions based on the pricing of the rate of exchange at the end of the month, and consequently these accumulated and that saw the exchange rate climb above NIS 3.53/$. Now there is supply from two sectors: tech companies need to pay salaries and are selling foreign currency as well as the need for all the pension payments. The supply of dollars is large because many players waited to see if the level of the dollar returned to the level of last month (NIS 3.54-3.55/$) and when they saw that this was not happening they had no choice but to try and sell the dollars because they need to pay the salaries, so they sold and dragged down the exchange rate."
He added, "Regarding the shekel-euro rate, this is a technicality due to the linkage of the shekel-dollar and shekel-euro rates. The euro has weakened a little on world markets against the dollar thus making it weaker against the shekel. The euro is weaker as people wait to see what process comes after Draghi leaves and how the market will work in the new environment with the main attention directed at the US-China trade agreement. The expectation is that the US will cancel some of the tariffs imposed on China."
Prico's working assumption is that providing there are no exceptional events locally, such as political uncertainty, handling the budget deficit which is widening, or the security storm clouds that are gathering, which would all spread a 'protective net' for the dollar against the shekel, then it is not worth holding dollars after the recent US rate cut and this is strengthening the shekel. In the long term, the shekel has the potential to strengthen but in the medium term local uncertainty limits the strengthening of the shekel.
Published by Globes, Israel business news - en.globes.co.il - on November 6, 2019
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