The shekel resumed its strong gains against foreign currencies. Earlier in the day, the Bank of Israel lowered the shekel-dollar representative rate by 1.35% compared to Thursday, to 3.728 NIS/$, and the shekel-euro representative rate was set by 1.333% at 4.048 NIS/€. In futures this afternoon, the shekel-dollar rate fell another 0.14% to NIS 3.723/$ and the shekel-euro rate fell another 0.05% to NIS 4.046/€.
The shekel now trades at rates to the dollar last seen in August, well before the war. The shekel has gained 8% against the US dollar since the beginning of November and 5% against the euro. Why does this happen?
Ronen Menachem, chief market analyst, Mizrahi Tefahot, told « Globes » that the strengthening of the shekel against the dollar and the euro is due to recent economic data from Israel and the United States.
In Israel, Menachem explains, the inflation and GDP data released over the past two days « were not lukewarm enough to convey to the market that the Bank of Israel is soon moving toward cutting interest rates. » « . In this context, Menachem also notes what the governor said late last week that the bank continues to focus on inflation and preventing excessive depreciation of the shekel.
But the main strengthening of the Israeli currency comes from the weakness of the American dollar. This is mainly due to reasons outside the Israeli market. On Tuesday, US inflation data was released, indicating a further decline in inflation in the country and convergence towards the Federal Reserve’s inflation target. Falling inflation has led markets to price in the expected cut in interest rates by the Federal Reserve from the first half of 2024 and has led to a weakening of the dollar against the world’s major currencies, as well as against the shekel .
Menachem adds that the rise in stocks on Wall Street this week also contributed to the change in foreign currency values. « There is an effect of price increases on Wall Street on the market. There is a positive link between the American market and the strengthening of the shekel (even if it is less strong than before). During the week Last year, there was an increase in stock indices in the United States (especially the Nasdaq) and this was partly reflected in the strengthening of the shekel.
The final factor is that the Bank of Israel is willing to sell foreign currencies as part of its plan to prevent currency depreciation during the war and stabilize the market. Menachem points out that the market does not know when the bank decides to intervene in the market, if at all: « We do not know the composition of purchases and sales of foreign currencies by an Israeli bank, so it may also be part of of the equation in currency movements this week.
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The volume of this month’s foreign exchange sales will not be revealed until early December, when the Bank of Israel publishes its foreign currency balances. In October, the Bank of Israel sold $8.21 billion in foreign currency, out of the $30 billion it allocated to moderate the war-related depreciation of the shekel.
Published by Globes, Israel Business News – fr.globes.co.il – November 17, 2023.
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