Since the outbreak of the 2008 financial crisis, many countries have pursued expansionary policies aimed at encouraging economic activity, including lowering interest rates to zero, which were maintained until recently, and buying bonds to ease credit conditions. (Strengthening) currency.
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Naturally, a strong currency weakens the competitive power in the international market, and the central banks intervene in the foreign exchange markets in order to protect exports. its.
Is it possible to please lose the submarine’s food in all the articles of the Currency War Project? Assaf Oni, The European Angle, Guy Ben Simon, The Israeli Angle and a column by Uri Psovsky. Here is the Ambed:
Here in Israel, the strengthening trend of the shekel since the beginning of the 2000s with the growth of the economy has helped purchasing power. However, for exporters, competitiveness has weakened – which has brought the Bank of Israel Intervene and buy dollars to moderate the strengthening of the shekel.
After buying $ 35 billion last year, the Bank of Israel’s foreign exchange reserves peaked at more than $ 210 billion. However, the bank stopped buying dollars at the beginning of the year as part of the end of its expansionary policy. Bank of Israel in sharp weakening of the shekel.
“In terms of the state of the economy in the previous decade, it was not necessary to protect the exchange rate in the overall view, but it was convenient to protect the exchange rate in favor of the locomotive – Israeli exports. It is true that inflation was low, but much of it was supply side,” IBI Investment House “Last year, the Bank of Israel purchased dollars when the economy grew by 8%, and the question arises whether intervention was needed? Probably not. If the economy had grown less because of the exchange rate – that’s fine, too.”
The strong shekel, which curbed inflation, changed direction
If the name of the game in the previous decade was “currency war”, the by-product of today’s fight against inflation has been dubbed “reverse currency war”. In the previous decade there was no inflation, and the story was how to prevent a slowdown and spur demand with the weakening of the currency. Rising inflation, however, has led to rising US interest rates at a rate not seen for years, and countries that have not aligned with Washington have suffered a capital outflow that has led to a devaluation of the currency against the dollar. A proactive action will be taken for the time being for this.
In the domestic market, as mentioned, the strong shekel has the power to curb price increases that originate overseas. However, the upheaval in the markets since the beginning of the year led to a sharp weakening of the shekel.
“When talking about the shekel, we need to look at the currency basket and not just the dollar. The currency basket was strong until the second quarter of this year, so we moved from a situation where the exchange rate hampers inflation to starting to contribute to inflation,” says Gozlan. “This is not a drama yet, as the shekel is strong. The economy produces high foreign exchange surpluses of $ 30 billion a year, and on the other hand there are foreign exchange outputs mainly from institutional bodies.”
Gozlan notes that the weakness partly reflects a deterioration in the underlying factors, a deterioration in trading conditions and a weakness in the technology sector, “but mainly reflects the high correlation of the exchange rate to US stock indices due to the high exposure of institutional entities, neutralizing foreign exchange exposure. The weakness in the underlying factors is reflected in the moderation of net direct investment. Beyond the expectation that the trend will continue due to the decline in technology stocks, it is likely that the deterioration in trading conditions will also lead to a decline in the current account surplus. “
Central banks will not oppose a strong currency
In contrast to the previous currency war in which the Bank of Israel moderated the strengthening of the shekel with dollar purchases, the reverse process of selling dollars is considered dangerous because of the importance of foreign exchange reserves in a crisis. The exchange rate today is moving aside as the story is long overdue not just inflation of imports. The weight of the rise in commodity prices is significantly higher than the increase obtained from the exchange rate. The central banks will not object to receiving a very strong currency, but they will not be active in this regard. “
Will a holiday in Europe still be cheaper?
“At the euro level, yes,” says Gozlan. “In Europe, the general index has risen much more than in Israel. Inflation in Israel is over 4% and in Europe it is around 8.5%. However, the change in prices has been higher in the last year, but the starting point is lower prices, so it will still be cheaper to travel in Europe”.
Most currencies have weakened against the dollar this year, and yet inflation in the US is among the highest. Apparently, if the currency is strong – then inflation should have been low. When the dollar was weak and the raw materials went up it was less dramatic, but today both the dollar and the raw materials are strengthening. That is why the United States is accepting inflation strongly, “Gozlan concludes. “But it has long been not just about currency and raw materials. In Europe, gas prices have doubled almost six times a year. What happened to the currency is nice but it is comma compared to the world of commodities.”