Shekel and dollar (Shutterstock photo)
Vigilance is registered towards the start of foreign exchange trading on Monday morning. The fear in the capital market is of an attack by speculators on the shekel after last week the dollar jumped to a level close to 3.7 shekels and brought a disappearing hand to sell dollars aggressively until the rate converged back to 3.6 shekels to the dollar.
Let’s recall that at the moment the movement of money is out of Israel and this means that investors are buying dollars from whatever comes next and causing its exchange rate to rise against the shekel. When investors fear that the dollar rate is too high for them, they switch to other major currencies, and here too the direction is against the shekel.
More in-
The macro considerations referred to by the Bank of Israel relate mainly to the effect of the dollar in principle and the basket of currencies more generally on inflation and we are talking about a rule of thumb that says for every 1% strengthening of the dollar, inflation increases by 0.15% and this is where the Bank of Israel enters the picture.
In principle, the Bank of Israel does not act to change the trend in foreign exchange trading, or rather that is how it acted when it purchased dollars, but to moderate fluctuations, but what happened last week was right on the verge of panic and it must act quickly before things got completely out of control.
Last week, the Financial Stability Committee convened for an extraordinary meeting where they discussed Israel’s economic stability in an era of legal revolution and fear of a loss of political/political control that would lead to a serious problem in economic performance. Among other things, the committee discussed the effects of the Bank of Israel’s intervention in commerce, and here a significant concern arose about calling all the speculators in the world to play against the Bank of Israel, and the implications are clear.
Concerns increased over the weekend when a number of foreign banks reacted quickly and drew the attention of foreign exchange players to what was happening in Israel. For example, Wells Fargo wrote to its investors that the Bank of Israel would intervene in favor of the shekel and sell dollars until the exchange rate reached the NIS 3.4 area, and all this in a short period of one month and a week, that is until the end of the first quarter of the year.
More in-
A more significant bank, Bank of America wrote to its investors that the continued weakening of the shekel would likely lead to the intervention of the Bank of Israel.
One way or another, speculative investments in the foreign exchange market are a significant problem for economies that try to create reasonable certainty for exporters and importers and in fact they distort the performance of the economy. Generally, modern economies try to keep speculators away from the foreign exchange market to mitigate these distortions and there are several ways, one The ways is the intervention of a central bank in trade, which causes the central bank itself to act like a speculator and do something that no modern central bank wants and that is to set an exchange rate that it protects.
Comments to the article(0):
Your response has been received and will be published subject to the system policy.
Thanks.
for a new comment
Your response was not sent due to a communication problem, please try again.
Return to comment