The shekel is weakening today against the dollar and against the euro after the latest US price rise data show that annual inflation has risen to 3.7%, fuelling fears of more US Fed rate hikes.
Earlier this afternoon the Bank of Israel set the representative shekel-dollar rate up 0.553% from Tuesday, at NIS 3.819/$, and the representative shekel-euro rate was set 0.718% higher at NIS 4.069/€. In late afternoon inter-bank trading, after the US data were published, the shekel-dollar rate was 0.4% higher at NIS 3.8325/$, and the shekel-euro rate was 0.3% higher at NIS 4.112/€.
Recent days have been extremely volatile in Israel's forex market with the stormy 13 hour debate yesterday as the High Court of Justice heard petitions that the law abolishing the reasonableness standard for ministerial and government decisions should be struck down.
At the same compromise talks to avoid a constitutional crisis continued saw the shekel strengthen considerably yesterday moving away from its weakesat for many years at NIS 3.85/$, when the Bank of Israel set the representative shekel-dollar rate down 1.222% from Monday, at NIS 3.798/$, and the representative shekel-euro rate was set 1.307% lower at NIS 4.069/€.
The depreciation of the shekel stems from factors overseas
Mizrahi Tefahot Bank chief economist Ronen Menachem told "Globes" that the strengthening of the shekel yesterday came from market expectations that there is still a possibility from a compromise on the judicial reform. "The court sent both sides to make amendments and also did not indicate one way or another how it might rule, so that it gave more time for discussions and reaching a compromise, which the market has been wanting for a long time."
That said it looks as if the weakening of the shekel today is due to overseas factors rather than domestic political instability with the Wall Street indices falling yesterday, the Nasdaq index by 1%, the S&P 500 by 0.6% and the Dow Jones by 0.1%.
Menachem explains that yesterday's wall Street declines led to a depreciation of the shekel because of Israel's institutional investors, "When there is a strong movement in the US stock market, there is an opposite movement in the shekel - dollar exchange rate".
Menachem also observed that today is likely to be highly volatile due to additional circumstances overseas. "The price index published today in the US is expected to cause great volatility in the markets, and as a result also in the foreign exchange rate in Israel."
Prico Risk Management, Finance and Investments CEO Yossi Fraiman agrees with Menachem and says, "The price index expected today in the US will signal the direction of the US Federal Reserve's actions, something that will affect the stock market and the activity of institutions, which will be required to act more aggressively than before due to the scale of the large foreign currency exposure they have".
In summary, it seems that factors in Israel and abroad will continue to cause great volatility in Israel's foreign exchange market, while the Bank of Israel continues to point to the depreciation of the shekel as a factor fueling inflation. Menachem stresses, "If the level of certainty in Israel rises, we will be able to see the shekel return to levels of NIS 3.5/$, but a negative turn will put the option of Bank of Israel intervention back on the table."
Published by Globes, Israel business news - en.globes.co.il - on September 13, 2023.
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