Shekel weakens sharply as volatility continues

The shekel illustration: Gil Gibli
The shekel illustration: Gil Gibli

Some analysts blame the shekel's depreciation on deteriorating US-Israel ties, while others says it is routine volatility.

The shekel is weakening sharply against the world's major currencies today. In afternoon inter-bank trading, the shekel is 0.93% higher against the dollar at NIS 3.656/$ and 1.38% higher against the euro at NIS 3.971/€.

On Friday, the Bank of Israel set the representative shekel-dollar rate up 0.499% from Thursday, at NIS 3.622/$, and the representative shekel-euro rate was set 0.349% lower at NIS 3.917/€. No new rate was set yesterday because of the Purim holiday.

Opinions split among analysts

Prico Risk Management, Finance and Investment CEO Yossi Fraiman says, "The escalation in relations between Prime Minister Benjamin Netanyahu and US President Joe Biden has provoked reactions from foreign investors who are reducing their holdings in the Israeli currency and buying foreign currency. This has brought about a depreciation to about NIS 3.66/$."

He explains that the shekel-dollar rate remains trading within the range of the past month, when the shekel depreciated to above NIS 3.70/$. "It was halted by foreign exchange sales by exporters. At the end of this month and the beginning of April, exchange rate volatility can be expected due to the abnormal scale of demand and supply of foreign exchange."

Mizrahi Tefahot Bank chief economist Ronen Menachem says, "This morning we saw a significant depreciation of the shekel against the dollar. The depreciation is happening despite the weakening of the dollar against the euro, so this means the weakening of the Israeli currency is due to domestic reasons. The first reason is the sharp dispute with the US and the general atmosphere surrounding diplomatic issues, as well as the latest reports on the difficulties and disputes in promoting the conscription law.

"All this creates an unstable geopolitical and local atmosphere, and the exchange rate is the first variable that reacts to events of this type, and quite strongly. In my estimation, this volatile period will continue in the coming weeks as well. At the same time, it must be remembered that a look at the behavior of the shekel over the last month or two shows that the current exchange rates do not yet constitute a move in any direction."

Energy Finance CEO Yossi Frank explains, "This is purely speculative activity with the shekel gaining for two weeks then weakening for two days. That's how it works in a broken market. The last volatility was actually from local players, and now foreigners are selling their balances. In addition, today there is the expiration of options of the institutional bodies, which caused the currency to strengthen last week."

Frank explains that the market operates on this level every day, and there is no need to link the political or security instability to today's fluctuations. However, he points out that in the event that the Bank of Israel returns to intervene in the foreign exchange market, we will see less volatility in the market.

Looking ahead Fraiman says, "As long as there is no security escalation, foreign exchange activity will continue to resemble a roller coaster. The scale of the activities of the institutional bodies has decreased recently, and it seems that a significant event in the stock market will be required in order to drag the institutions into significant forex activity."

Published by Globes, Israel business news - - on March 26, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

The shekel illustration: Gil Gibli
The shekel illustration: Gil Gibli
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