Shekel strengthens sharply against US dollar

The shekel is strengthening considerably against the US dollar. The shekel-dollar rate is currently 3.7612/$, down 1.49% from the representative rate of NIS 3.818 set last Friday. The main reason for the fall in the exchange rate is the progress in negotiations for the release of Israeli hostages held by Hamas in the Gaza Strip.

The shekel-dollar rate has been very volatile lately, a function of the varying intensity of the fighting in the Gaza Strip and tensions on Israel’s northern border and with Iran. Relative quiet and rumors that hostages are about to be released strengthen the shekel, while flare-ups and hiatuses in the hostage negotiations weaken it.

The rise in the shekel-dollar rate last week, and the decline on the Tel Aviv Stock exchange, stemmed mainly from fears that the conflict on Israel’s borders would widen, with consequences for the price of oil. The rate of NIS 3.81/$ that the shekel reached at the end of last week, represented depreciation of 6.5% in two months.

The shekel-dollar rate is also affected by trends on US stock markets. When stock markets in the US rise, Israeli financial institutions, which are heavily invested in those markets, become more exposed to the dollar, and therefore sell dollars and buy shekels to cover that exposure. Last week, the Dow Jones Industrial Average rose 0.7%, the S&P 500 rose 2.7%, and the Nasdaq rose 4.2%, following three weeks of declines.

In a recently released survey of the Israeli economy, Bank of America says that the state of war continues to be a burden on the country’s budget, but that, despite the rise in the fiscal deficit in the past few months, the deficit is still expected to be 6.5% of GDP this year. Bank of America also sees large upside in the shekel, and says that if current uncertainties are dispelled, the shekel-dollar rate could fall to NIS 3.5/$ by early next year.

Bank of America sees Israel’s economy growing by 2.4% this year, which compares with a forecast of 2% by the Bank of Israel, 1.6% by the IMF, and just 0.5% by S&P. It forecasts 2.7% inflation for the year, which is similar to the Bank of Israel’s estimate. But whereas the Bank of Israel forecasts 5% growth in 2025, Bank of America forecasts just 3.5%. Moreover, Bank of America has revised its forecast of the Bank of Israel’s interest rate at the end of 2024 upwards, from 3.5% to 4%. The Bank of Israel’s own forecast is 3.75%. The current rate is 4.5%.

This week, the shekel-dollar rate is likely to continue to be volatile, with an interest rate decision, job numbers, and financials from the tech giants due to be released in the US, while the negotiations on a ceasefire and the release of Israeli hostages in the Gaza Strip will have their ups and downs.

Meanwhile, the Tel Aviv Stock Exchange has reopened after the Passover break with strong gains. The Tel Aviv 35 Index is currently up by more than 1.5%.

Published by Globes, Israel business news – en.globes.co.il – on April 30, 2024.

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