Much has been said about the effects of the drama and uncertainty in the Israeli political arena in the crisis caused by the disagreement among Israelis in particular over the fluctuations of the shekel and external fluctuations. Another dramatic expression of the close relationship between legal reform and the Israeli currency was seen last Thursday.
At around 4 p.m., it was reported that Defense Minister Yoav Gallant would make an announcement calling for a halt to judicial reform at 8 p.m. Shortly thereafter it was announced that Prime Minister Benjamin Netanyahu would address the nation.
The hope of stopping the legislation and the possibility of a neat exit from the quicksand was enough for the market to express optimism and strengthen the shekel against the dollar by more than 1.5% in less than 30 minutes to 3.55 shekels / dollar.
By early Thursday evening, it became clear that Gallant had called off his speech and that only Netanyahu would speak. Five minutes into Netanyahu’s speech, the market realized that hope for a compromise was premature and that the prime minister had no intention of stopping judicial reform legislation. The forex market immediately expressed its disappointment, causing a sharp drop in the shekel’s price against the dollar.
On Friday, the Bank of Israel set the representative dollar shekel rate at 0.443% at 3.628 shekels/dollar, and the representative exchange rate between the shekel and the euro was set at 0.359% at 3.914 shekels/euro. In futures trading today, the shekel is rising against the dollar, declining by 0.60% to 3,590 shekels/dollar, and rising 1.65% against the euro, at 3,864 shekels/euro. So what will happen tomorrow morning when the forex market opens.
It will take some time for the market to recover.
“The turmoil is not only affecting the foreign exchange market, we see an expectation of a compromise also in Israel’s rising risk premium, in bonds and stocks,” IBI Investment House chief economist Ravi Gozlan told Globes.
Gozlan stresses that a settlement would lead to the well-being of the market, but in the long term, it will take time for the market to return to the situation it was in before the political turmoil and once again express a similar confidence in the Israeli market.
Thursday was not the first time this month that the foreign exchange market showed excessive volatility in a few hours due to developments in the political arena. In the hours leading up to President Isaac Herzog’s speech at the beginning of the month and his expected announcement of a compromise scheme, there was hope that caused market optimism and a strengthening of the shekel. Then the optimism also evaporated, and when the coalition responded by rejecting the president’s settlement, the shekel immediately weakened again. If that wasn’t enough, at the same time on the same day, the dollar itself experienced instability, falling by about 1.1% and rising again almost a few hours later.
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Stormy times can be expected in the forex market this week, not only because of the legislation that will be discussed from tomorrow in the Knesset on the formation of the committee that selects the Supreme Court justices, but also because of the international turmoil caused by the troubled banks in the United States. and Europe.
Published by Globes, Israel business news – en.globes.co.il – on March 26, 2023.
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