Shekel weaker against dollar despite Fed rate cut

Shekel Photo: ASAP Creative

The forex market had priced in a US interest rate cut but was surprised by the Bank of Israel Governor's remarks that there would be no rate hike.

The shekel is weakening today against the dollar and strengthening against the euro. In late morning inter-bank trading, the shekel-dollar exchange rate is up 0.75% against the dollar at NIS 3.525/$ and down 0.24% against the euro at 3.891/€.

Yesterday, the Bank of Israel set the shekel-dollar representative rate down 0.029% at NIS 3.499/$ from Tuesday, and set the shekel-euro rate down 0.046% at 3.8997/€.

Last night, as expected, US Federal Reserve Chair Jerome Powell cut the US interest rate by 0.25% to between 2% and 2.25%. This first US interest rate cut in a decade was something that the market had already priced in and was one of the reasons why the shekel has been strengthening against the dollar over the past week.

However, what took the market totally by surprise yesterday, and halted the strong appreciation of the shekel, was Bank of Israel Governor Prof. Amir Yaron's unexpected statement that there would be no interest rate hike in the foreseeable future. This was even though the Bank of Israel Research Department reiterated its forecast last month that there would be a rate hike this quarter from the current level of 0.25%.

The market now awaits the European Central Bank, which is also expected to raise the interest rate soon.

Leader Capital Markets macroeconomist Yonatan Katz said, "Powell provided the markets with what they wanted: a rate cut, but he didn't sound convinced that it was necessary, due to the positive data on the US economy, it was certainly 'a hawkish rate cut' with Powell not necessarily seeing a process of continuing to cut the interest rate. It is important to stress that two members of the US Federal Reserve voted to keep the interest rate unchanged. The markets fell, the dollar strengthened and returns on short trading rose."

He added, "Eyes are now turned to the European Central Bank which is also expected to cut the interest rate and expand the amounts of its quantitative easing program in September, which will support the continued weakening of the euro on world markets."

Published by Globes, Israel business news - en.globes.co.il - on August 1, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Shekel Photo: ASAP Creative
Shekel Photo: ASAP Creative
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