The shekel closed the trading day yesterday (Thursday) significantly stronger against the basket of currencies. However, it is not at all clear whether the trend will continue. Today the shekel started to weaken again against the major currencies, with the dollar strengthening by 1.4% against the shekel and the euro strengthening by 1.1% against it, as of this writing.
The exchange rate against the dollar and the euro currently stands at 3.66 and 3.88 shekels respectively. After the strengthening of the shekel yesterday, it seemed that we were facing a change in the current trend line, in which the shekel weakened significantly against the dollar and the euro. Since the beginning of the year, the shekel has weakened against the dollar by more than 2.2%, when at the beginning of 2023 the exchange rate stood at 3.53 shekels. The euro has strengthened since the beginning of the year by almost 3%, when its rate was just over NIS 3.7 per euro at the beginning of the year. Against the euro, the weakening trend is stronger – the exchange rate has risen significantly in the last six months.
As mentioned, yesterday the shekel soared and strengthened against the basket of currencies. In particular, there was a strengthening against the dollar and the euro, when the record was recorded yesterday at a rate of 3.6 shekels against one dollar. The trading day finally closed with a decrease of 1.36% and stood at NIS 3.61 per dollar. The euro also weakened on the trading day yesterday and stood at NIS 3.83 at the end of the day, a decrease of almost 1.5%.
It is not clear what causes the volatility in the foreign exchange market
The reason for the high volatility in the foreign exchange market is still unknown. Among the various explanations for the recent strengthening, there is the claim that the Bank of Israel intervened in the foreign exchange market in order to cool down the weakening of the shekel – but market factors completely denied this. This week Bank of America published a review which states that the Bank of Israel may intervene in trading in the currency market in order to moderate the high volatility that has occurred in recent days. “Such an intervention will have a price mainly in the form of a further reduction in the level of liquidity in the market. In any case, the Bank of Israel is not expected to set a target rate or an upper limit for the dollar rate, but only to act with the aim of mitigating the high volatility,” they wrote.
We will recall that yesterday in the budget debates Bank of Israel Governor Prof. Amir Yaron warned about the situation in the market and claimed “a crisis may break out”. It seems that the foreign exchange trading, which is supposed to be an indicator of the market situation, marks it correctly – uncertainty.