The shekel is rising sharply against the US dollar today. In the afternoon, the shekel rate against the dollar fell by 1.46% against the dollar, reaching 3.674 shekels/dollar, and decreased by 0.16% against the euro, reaching 3.849 shekels/euro. Since the beginning of November, the Israeli currency has been enjoying one of the best months in recent times.
Geopolitical optimism boosts the shekel
The northern front has intensified, and in the past few days hundreds of rockets have been fired at northern Israel, the Sharon area and Tel Aviv, but at the same time reports are strengthening about a possible ceasefire in the coming days. “Progress toward diplomatic arrangements on the northern front and the market’s perception that the fighting in the north may be about to end brings optimism that strengthens the shekel,” says Mizrahi Tfahot’s chief economist, Ronen Menachem.
In addition, last month was positive for the shekel due to good economic data. Annual inflation expectations have moderated and risk premiums have declined, while the latest GDP data has been more positive than expected.
Energy Finance CEO Yossi Frank adds: “What matters to the market is the escalation with Iran and the fighting in the north. Once Iran lowered the fire, the shekel started to rise since the weekend and when rumors about a ceasefire with Lebanon increased.” The shekel’s gains have consolidated, and today we have already seen it move below NIS 3.70/$. However, Frank says the key test point will be NIS 3.65/$, which the shekel has not yet reached.
The dollar is weakening around the world
While the shekel rose against the dollar over the past month, the US currency itself strengthened against a basket of major currencies. The DXY index, which measures the dollar’s performance globally, reached 107 points during November (after starting at 104 points). But now the trend has changed and the dollar has started to weaken against the basket.
Menachem explains that there is now a correction to the period leading up to and shortly after the US elections: “Trump’s election victory led to positive sentiment in the markets, following expectations of Trump’s business-friendly policies. Moreover, expectations for US monetary policy have slowed, Fed chiefs point out The Federal Reserve indicated that interest rates would not fall soon, which strengthened the dollar.
Menachem confirms that the greatest gains achieved by the dollar were against the euro. “The eurozone is suffering from a series of problems. The escalation in the Ukraine war and the faltering economy in China, which is linked to economic activity in Europe, is adding to the weak sentiment for the currency,” he explains.
What will happen in the future?
Analysts believe that the shekel will move according to geopolitical reality. The escalation in Israel will weaken the shekel to its highest levels in recent months, while an agreement with Hezbollah, especially if it would include a ceasefire or the return of hostages, could lead to a further rise. In the long term, economic conditions in Israel, such as an export surplus on the current account and low expected inflation, support continued strengthening of the shekel.
Published by Globes, Israel Business News – en.globes.co.il – on November 25, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
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