Shekel sharply weaker in wake of Wall Street falls

The shekel is falling sharply today against the US dollar and the euro. In interbank trading late in the afternoon, the shekel rose against the dollar by 1.26% to NIS 3.717/USD, and the shekel rose against the euro by 1.35% to NIS 4.107/EUR.

Yesterday, the Bank of Israel set the shekel-dollar exchange rate at 3.671 shekels per dollar, up 0.465% from Monday, and the shekel-euro exchange rate at 4.052 shekels per euro, up 0.223%.

“The shekel is falling sharply today against the dollar and the euro,” said Ronen Menachem, chief economist at Mizrahi Tefahot Bank. “One important reason is the sharp declines on Wall Street yesterday and expectations that they will continue today. Such sharp declines cause local institutions to have less exposure to foreign currency, so they must convert shekels into foreign currency, which creates pressure on the shekel.”

“Moreover, the political environment and uncertainty over the hostage deal are of great importance. We know that markets react positively when there are optimistic developments (the dollar is strengthening and stock indices are rising), while in the current situation there seems to be no progress. It is also possible that renewed talks on judicial reform will weaken the shekel. Last year, before the war, the reform was responsible for an excessive depreciation of the shekel by about 10%.”

At the same time, one should not get excited about changes of several tenths of a percent on a daily basis, because the currency is very volatile. As evidence of this, over the past month the shekel has already strengthened by 2.4% against the dollar. Also, the new fiscal policy presented by the Finance Minister, which limits the deficit for 2025 to 4% of GDP, looks like a change that is moving in the direction of the Bank of Israel and credit rating agencies. This factor may support the shekel and offset some of the external influences.

“In my estimation, the shekel’s broad range (NIS 3.60-3.80/USD) will continue depending on what happens in external markets and military and political developments. The shekel can change direction quickly and strongly, so you should not get carried away by daily and momentary fluctuations.”

This article was published in Globes, Israeli Business News – en.globes.co.il – on September 4, 2024.

© Copyright Globes Publisher Itonut (1983) Ltd., 2024.