In the last week of October, the shekel appreciated 2.5% against the US dollar, making it the best-performing emerging market currency and bucking the trend of depreciation of emerging market foreign currencies against the dollar ahead of the US presidential election, according to a report by the World Bank. Review of currency markets by US investment bank Goldman Sachs.
Goldman Sachs estimates that the shekel will rise to a rate of 3.6 shekels/dollar over the next six months, and will continue to rise for the foreseeable future. Goldman Sachs expects a rate of 3.5 shekels to the dollar within a year and 3.4 shekels to the dollar in 2027.
Goldman Sachs says the reason the shekel’s value rose last week was “lower geopolitical risks after the weekend as targeted Israeli strikes on Iranian energy facilities were avoided, which also led to a significant drop in oil prices.” The investment bank survey adds: “Looking ahead, geopolitical risks will remain the main driver of the shekel, with some gains already eroded as the week goes on and risks rising again over the weekend. But outside of this, we believe macroeconomic fundamentals (and therefore valuations) and monetary policy will It remains supportive of the currency.”
As the risks of the confrontation between Israel and Iran escalating again at the end of last week, the shekel fell by 0.7% against the US dollar on Friday. Security risks have caused high fluctuations in the shekel price since early 2023, and to a greater extent after the outbreak of war thirteen months ago. Stabilizing the exchange rate became one of the main objectives of the Bank of Israel, and it intervened in the foreign exchange market to achieve this end at the beginning of the war. The sale of $8.5 billion of the Central Bank’s foreign currency reserves contributed to preventing the erosion of the value of the shekel, but the state of instability due to the security situation did not stop.
Goldman Sachs says the Bank of Israel is expected to maintain a tight monetary policy. “On the monetary policy front, while the downward surprise in September’s inflation print has reduced the chance of a rate hike, the Bank of Israel is nonetheless likely to remain cautious in the face of geopolitical uncertainty and inflationary risks stemming from a fiscal deficit that remains widespread to and support the war effort.”
Published by Globes, Israel Business News – en.globes.co.il – on November 4, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
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