Like other currencies, the Israeli shekel also weakened as a result of the strengthening of the dollar, which soared mainly due to the sharp interest rate hikes in the US. However, while the currencies of many developing countries have fallen by dozens of percent since the beginning of the year, the dollar has added 10% to itself since the beginning of the year against the shekel. However, In summary of the last decade, the shekel is still the only currency that strengthened against the dollar in the world.
As of writing these lines, the dollar continues to strengthen by about 0.6% relative to the shekel, and its value is NIS 3.459. On the other hand, against the euro and the pound, the shekel is actually climbing.
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Not only the strengthening of the dollar hurts the shekel
In addition to the strengthening of the American currency all over the world, which, as mentioned, also affected the shekel, the weakening of the local currency is also due to the decline in the stock markets. This is due to the high exposure of the Israeli institutional entities to investments abroad. When the markets rise, the exposure to foreign exchange also increases, and when institutions do not want to increase exposure, they sell foreign exchange, and vice versa – when the markets fall and the entities need to increase collateral (part of the exposure is through futures contracts ), therefore they purchase dollars and thus cause the dollar to rise against the shekel.
Modi Shafferer, chief financial markets strategist at Bank Hapoalim, explains why the shekel was less affected compared to other currencies. “Unlike the emerging markets, there are basic pressures for the appreciation of the shekel, such as a significant surplus in the current account (the volume of funds entering Israel is significantly higher than the volume of funds going out, due, among other things, to a sharp increase in the export of services such as high-tech) and direct investments in very high volumes by foreign investors in Israel. In addition, the Bank of Israel It is not expected to return to purchasing foreign currency so quickly and weaken the shekel, so when the situation in the markets changes in the long term we will see the shekel strengthen again,” says Shafferer.
Not just the fuel: the way to the pocket of the Israelis
Israeli consumers feel the effect of the strengthening of the dollar in their pockets. “This has an inflationary effect in Israel as well because there are technical things that are tied to the dollar, such as the prices of flights abroad. The fuel prices that are set at the end of each month are also affected. Another effect on the public is if a company buys a large inventory at high dollar-shekel or euro-shekel rates, and this is passed on to consumers. So the rise of the dollar also affected the Israelis and raised inflation a bit. At the same time, against the other currencies, the shekel has hardly weakened since the beginning of the year. In addition, it is important to note that, unlike developing markets, Israel does not have many dollar debts, so the considerable strengthening of the dollar in the world does not cast doubt on Israel’s fiscal situation.”