The shekel, which strengthened sharply in foreign exchange trading on election day, is weakening even more sharply today. In inter-bank trading today, the shekel-dollar exchange rate is 1.93% higher at NIS 3.113/$ and the shekel-euro rate is 1.87% higher at NIS 3.452/€. With some 77% of the votes counted, it appears that investors are less confident that a clear-cut result will emerge.
Mizrahi Tefahot chief economist Ronen Menachem says, "Due to anticipation surrounding election day, including the assessments leading up to it and the results thus far, the shekel-dollar exchange rate has exhibited a sharp, yet typical, reaction. This is due, in part, to major involvement by foreign entities in the trading. The foreign exchange market is typically the first to react to events with economic implications, elections included, often doing so quite sharply. However, precisely for this reason, initial reactions should be viewed with caution."
"A more appropriate perspective is to look ahead," Menachem added. "Regardless of the outcome of coalition negotiations or the composition of the next government, any scenario that signals a clear economic outlook and market-friendly policies would be welcomed, as we have seen in similar periods in the past. This includes factors such as a sound state budget, clearly defined priorities, positive developments in foreign trade, and more.
"Naturally, the shekel will continue to respond to exogenous events, including the regional security situation. Furthermore, one must consider the strong correlation between the shekel and US stock markets, which are currently in the midst of the reporting season, thereby adding an extra layer of volatility at this time. Another test for the shekel awaits in a week’s time, once the US midterm elections have passed and their broader impact, particularly on US policy in the region, begins to be assessed. Throughout the negotiations, for as long as they continue, it is quite reasonable to assume that the shekel’s volatility will remain relatively high," said Menachem.
Dr. Ido Kallir, Head of the Finance Program at the International School of Ono Academic College, believes that the extreme volatility seen in recent days is a direct result of activity by foreign entities and investors. He further notes that, moving forward, the local forex market will be influenced by two primary factors. The first is the resumption of a trend in which private Israeli investors shift capital abroad, not necessarily through the physical transfer of cash, but by moving into investment vehicles that track foreign markets or are denominated in foreign currency. The second factor involves institutional investors, such as pension funds, insurance companies, and provident funds, evaluating interest rate differentials between Israel and global markets, as well as their hedging strategies.
According to Kallir, long-term analysis points to a consistent trend of the shekel gradually weakening toward an exchange rate of at least NIS 3.3/$. "Given the nature of the orders and the intensity of the extreme fluctuations recorded recently, this process could accelerate significantly, with the target reached sooner than initially anticipated," he stated.
Published by Globes, Israel business news - en.globes.co.il - on October 28, 2026.
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