After the shekel weakened to NIS 4.08/$ on Friday, a 6% depreciation since the start of the war, the Israeli currency has since reversed the trend and is appreciating strongly. In inter-bank trading this morning, the shekel-dollar rate is down 0.84% at NIS 4.021/$ and the shekel-euro rate is down 0.09% at NIS 4.290/€.
Yesterday, the Bank of Israel set the representative shekel-dollar rate down 0.637% from Friday, at NIS 4.055/$, and the representative shekel-euro rate was set 0.332% lower at NIS 4.293/€.
Several factors have contributed to the strengthening of the shekel. Mizrahi Tefahot Bank chief economist Ronen Menachem sees the trend continuing. He told "Globes,", "It looks like we are moving towards a limited war that will focus on the south and won't extend beyond the last quarter of the year. The expectation is that the economy can recover from this within a year from when the war ends."
Leader Capital Markets chief economist Yonatan Katz added that the market is beginning to feel some certainty about the confrontation. "The war is apparently developing without a real escalation in the north, and the market understands that there are no complications so far in the fighting in Gaza, even if military activity continues." Thus the risk decreases in connection with the war in the south as time passes and the fighting does not escalate, he explains.
The second factor is of course the Bank of Israel, which is at the heart of things. The central bank has pointed several times to the depreciation of the currency as the main problem for the Israeli economy. The bank even decided last week not to cut the interest rate in the economy, so that its activity in the foreign exchange market (aggressive sale of up to $30 billion) would not be harmed by a cut in the interest rate.
External factors as well
There are also external factors, although their influence is weaker. The main one is the interest rate announcement in the US on Wednesday when, according to estimates, the interest rate will remain unchanged, but there is concern about the statements of Federal Reserve Chair Jerome Powell, which could indicate a further increase in the future. "The latest data mostly supports continued monetary restraint - the interest rate may still rise, although not in the near future, but it cannot be ruled out that it will not rise by the end of the year, and this will support the dollar and act to weaken the shekel against it," notes Menachem.
Analysts detect a certain optimism in the markets, with Katz explaining that every day that there is no escalation in the north, the risk in the Israeli economy decreases. Menachem, for his part, believes that the increase will continue. "Due to the reasons I mentioned, there is a high probability that the shekel will continue to strengthen. Tomorrow there will be more certainty about the future of the shekel after the Fed's interest rate decision, following which volatility is expected," he told "Globes."
BDO chief economist Chen Herzog said, "The challenges and risks to the Israeli economy are extremely significant, as also reflected in warnings by the rating agencies. Looking ahead, the government must act to form a new budget for 2024. It is clear that the existing budget is not relevant, both in terms of spending and revenue, and a fundamental change in national priorities is needed. The direction of Israel's economy and the dollar looking ahead depend on the government's ability to form a budget that includes a basic change in national priorities and shifting coalition budgets to growth-encouraging budgets," Globes reports.