The dollar did not rest – after registering a jump in the last few days, the dollar today registered an increase of another 1% and was set at NIS 3.54. In the last two weeks alone, the dollar rate rose by 5.2% from NIS 3.36.
At the end of January, the shekel weakened against the dollar. However, the devaluation of the shekel is relatively small, at least for now, and is a continuation of a trend that has been ongoing since the end of 2021. This raises the question of what determines the exchange rates, and whether rumors about government actions can indeed affect the exchange rate.
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Last week the dollar weakened and the shekel strengthened – at the same time as increases in markets abroad – as Wall Street rises and the dollar falls. The strong employment report in the US published on Friday led to market declines that boosted the dollar. Unemployment also fell to a rate of 3.4%. Low unemployment is a sign that we are not in a recession, and on the other hand this is a sign of increased demand, or more precisely – of continued demand. The Fed wanted to see an increase in unemployment so that in the future there would be a decrease in demand and a decrease in inflation. This is not happening.
The dollar exchange rate has been unstable in recent months. And it makes sense. The inflationary environment erodes its value on the one hand, interest rate increases strengthen its value on the other, and this game has been going on for a long time. It is difficult to estimate when this ping-pong will end as long as the economy does not stabilize and as long as inflation does not show a significant and consistent slowdown. This volatility is not healthy. It affects trade in both imports and exports. It also affects the profits of the international companies that sell in different countries and their profits are affected by the exchange rates. A jump in the dollar is good for exporters, hurts importers, for the local stock exchange it is actually good because it means that every dollar is worth more shekels and therefore even when the stock exchanges on Wall Street – Tel Aviv are less affected .
At the same time, the euro is also strengthening against the shekel, when in the last two weeks it added about 3.2% and rose from NIS 3.66 to NIS 3.78. However, and unlike the dollar, the dollar has been showing a consistent increase for almost six months, adding no less than 15% to its value since the end of August. The reason is the heavy inflation in Europe and the relatively slow rate at which the central bank of the Eurozone raises interest rates. To this we can add the energy crisis that is facing the continent in light of the Russia-Ukraine war which led the Russians to close the gas tap to Europe as a response to the sanctions it imposed on it.
The problem is that we the consumers end up losing. The increase in prices for importers leads to a price increase for the final consumer as well, that is us. The person who may still benefit from this is the Bank of Israel, which may take advantage of the situation to cover for itself some of the huge losses incurred due to the huge purchases of dollars in recent years to support the dollar, which has weakened over the past few years.
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