2023-12-22 12:07:30
The shekel strengthens sharply against the dollar and the euro
The last trading day in the local foreign exchange market opened with a sharp weakening of the dollar against the shekel, when this morning (Thursday) the dollar-shekel exchange rate traded around 3.6 shekels and even fell below this level – the lowest rate since July. The shekel is also strengthening against the euro, although to a lesser extent and now stands at 3.96 shekels to one euro. This is a sharp strengthening of the local currency against the foreign currencies and is even surprising, since the shekel was stable in the last trading week and the local currency strengthened only moderately.
What are the reasons for the strengthening of the shekel and how is it related to interest rates in Israel?
“These are events that take place mainly in the local arena,” Ronan Menachem, Chief Economist at Bank Mizrahi Tefahot, tells Globes. He also emphasizes the declines on Wall Street, which traditionally usually lead to a devaluation of the local currency following changes in foreign exchange holdings by institutional bodies.
Menachem explains that “in recent days many doubts have arisen regarding the state’s fiscal budget. Bank of Israel Governor Prof. Amir Yaron spoke several times this week about the need for a balanced budget and discretion on the part of government officials in the distribution of funds.” Menachem emphasizes that doubts about the budget and the deficit lead the market to understand that this side can make it difficult for the Bank of Israel to lower the interest rate.
The Houthi threat causes further concern about lowering interest rates in Israel
According to the forecasts, the first interest rate cut is expected to occur as early as January, when the market embodies the expected interest rate cut through the exchange rate of the shekel. The false predictions on the part of the market can cause a sharp weakening of the shekel, due to the predicted interest rate gap between Israel and the countries of the world, where interest rate decreases are also expected in the near future.
Menachem points out that the Houthi threat in the Red Sea can bring with it another fear of lowering interest rates in Israel. high when inflation can raise its head again following this threat.
Thus, the interest rate on the part of the Bank of Israel and especially the expectation that it will decrease soon, contribute to the strengthening of the shekel now. Menachem says that it is important to remember that the Bank of Israel has not yet withdrawn from the foreign exchange sale program it announced at the beginning of the war, 30 billion dollars to stabilize the shekel: “Although last month it rarely sold dollars in order to balance the shekel, this option should not be ruled out and the Bank of Israel can continue to operate in the market If he sees reason for it.”
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