The shekel is weakening very sharply today following hawkish comments on Friday by US Federal Reserve Chair Jerome Powell. In afternoon inter-bank trading, the shekel exchange rate is up 2.10% against the dollar at NIS 3.328/$ and is up 2.08% against the euro at NIS 3.320/€.
On Friday, the Bank of Israel set the representative shekel-dollar rate down 0.852%, at NIS 3.259/$, and the representative shekel-euro rate was set down 0.869% at NIS 3.252/€.
On Friday, after the forex markets closed in Israel, Powell stirred up the markets by signaling further interest rate hikes. He insisted that the Fed would "use its tools forcefully" and warned of "some pain" ahead in the struggle to tackle rising inflation. The US Federal Reserve has already imposed back-to-back 0.75% hikes over the past two months - the first such aggressive hikes since the 1990s, and analysts now expect three more hikes before the end of the year totaling about 1%, with rates falling next spring if inflation moderates.
So with the interest rate gap between the dollar and shekel set to widen, and markets falling strongly following Powell's comments, forcing Israeli institutional investors to buy foreign currency to hedge their overseas positions, the Israeli currency is depreciating sharply today.
Last week the Bank of Israel announced its own aggressive rate hike of 0.75%, lifting the Israeli rate to 2%, and temporarily narrowing the interest rate gap with the dollar.
After the Israeli currency weakened strongly in the first half of the year, before today, the shekel had strengthened by 7% against the dollar over the past two months and by more than 10% against the euro.
Published by Globes, Israel business news - en.globes.co.il - on August 29, 2022.
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