The shekel price rose sharply against the US dollar this morning, and the market assessment is that the main reason is the significant progress reported in a deal to release Israeli hostages held by Hamas and a ceasefire in the Gaza Strip. The dollar-shekel exchange rate currently stands at 3.6328 shekels/dollar, 1.07% lower than yesterday’s representative rate. In the past few months, the shekel has become one of the strongest currencies in the world.
The US dollar rose significantly against other currencies. The DXY index, which measures the dollar against a basket of other currencies, has risen 6% in the past three months, but the shekel’s rate against the dollar has actually fallen more than 3.5% in the same period. There are several reasons for this, the most important of which is the decline in the Israeli risk premium against the backdrop of the ceasefire in Lebanon.
Modi Shefrier, chief financial markets strategist at Bank Hapoalim, explains the recent strength of the shekel by the prospect of a hostage release deal being signed soon.
“The market seems to believe that the ceasefire that will be signed (temporary for now) will lead to pressure from the Trump administration to end the war in the Gaza Strip, which in turn will lead to a further significant decline in prices.” “Israel’s risk premium has actually fallen sharply since November, although it remains high – in global markets, Israeli government bonds are still trading at prices similar to those of BBB-rated companies,” says Shafrir.
One market player we spoke to agrees that the reason behind the current rise in the shekel’s value is the ceasefire agreement, but he is less optimistic. He says investors around the world are pricing in several steps forward, such as political changes in Israel or a potential deal with Saudi Arabia. “There have been several articles in Bloomberg about supposed renewed contacts with Saudi Arabia, so the market is moving forward with dreams of a new Middle East. In my opinion, foreigners are struggling to understand the geopolitical situation, and are not taking into account the situation.” Taking into account the constitutional story that tore the country apart in 2023.”
“In the last few months we have seen that the shekel has not participated at all in the global weakness of all currencies against the US dollar,” says Gat Megiddo, CEO of investment firm Venisa Capital. “On the one hand, this stems from, on the other hand, the risk premium in Israel has decreased, and on the other hand, Others are due to the influx of funds into the Israeli market by local institutions and foreign investors.
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“It is important to remember that, in the end, Israel is an exporting country with a positive trade balance, and the natural tendency of the shekel is to appreciate against other currencies. It should be noted that over the past few days, it was reported that the fiscal budget deficit for 2024 will be slightly lower than the expected level, Which helps to strengthen the shekel, and that the (hostage) deal is seen mainly as a positive event, although it is also an isolated event that is difficult to assess exactly how it will happen in the end and what the timeline will be.”
Published by Globes, Israel Business News – en.globes.co.il – on January 14, 2025.
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