The shekel continues to weaken against the major currencies in foreign exchange trading. The shekel-dollar rate is currently up 0.37% in comparison with yesterday's representative rate, at NIS 3.516/$, and the shekel-euro rate is up 0.03%, at NIS 4.6917/€.
The representative shekel-dollar rate was set at NIS 3.5/$ yesterday, up 1% on Friday's rate, and the highest since March. The shekel-euro representative rate was set at NIS 4.69/€, up 1.2%. The background to the weakness in the shekel is mainly the weak growth figures released for the second quarter showing that the Israeli economy grew at an annual rate of only 1.7% during the quarter, which means stagnation in per capita terms, and is the lowest quarterly rate recorded since 2009. The growth rate in the first quarter was 2.8%.
Yossi Frank, CEO of Energy Finance Ltd., told "Globes" today, "The dollar-shekel rate is at a six-month high for three reasons. First and foremost are the GDP and inflation figures. It's no longer possible to hide behind partial data. Inflation is negative, per capita growth is negative, and perhaps they finally realize this in Jerusalem. And let's not forget that these figures are from before Operation Protective Edge, and the numbers will only get worse as we go on."
The second reason, according to Frank, is a by-product of the first. "The market by now understands that the Bank of Israel and the Ministry of Finance will have no choice but to take harsh steps. It begins and ends with an unrealistic exchange rate that critically damages the Israeli economy and has to be dealt with more seriously in order to arrive at an equilibrium rate, whether through the interest rate or through unconventional intervention in the foreign exchange market, and through additional means as necessary to bring about a substantial depreciation.
"The third reason is the ease with which technical and psychological barriers were broken through. Many companies took advantage of the depreciation, gambled, and hedged at around NIS 3.5/$, so that this barrier, which everyone thought would be difficult to break through, melted away yesterday like butter. All this means that the shekel, which was the favorite of the past year, is no longer so much in favor, and plenty of entities have decided to sell it," Frank said.
FXCM Israel said in its market review this morning, "The shekel-dollar rate is already testing the significant resistance level at NIS 3.515/$, the lower limit of the range in which the pair was traded in the second half of 2013. In fact, the pair has already corrected a third of the fall since the May 2013 peak of NIS 3.72/$.
"The sudden weakness of the shekel borders on a selling panic, and indicates an extreme change in sentiment towards it. There is no doubt that the levels at which the shekel has been traded over the past year have been unrealistic in relation to the economic situation, and so it could be that we are at last seeing a rebalancing, as is natural in the economic cycle. The current momentum, however, can be expected to moderate in the short term, and it could be that, in the light of the series of breakthroughs of key levels, in the coming days we shall see a halt and a reverse correction. As long as the pair stays above NIS 3.5/$, the trend will be upwards."
Published by Globes [online], Israel business news - www.globes-online.com - on August 19, 2014
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