Stronger Dollar, Weaker Shekel

YERUSHALAYIM

As the dollar has strengthened in international markets, the shekel has correspondingly weakened.

The shekel-dollar exchange rate rose 0.13% on Tuesday, compared with Monday’s representative rate, to NIS 3.665/$, and the shekel-euro exchange rate was up by 0.33% to NIS 4.724/€.

The surge in the dollar has continued since the Bank of Israel’s unexpected interest-rate cut of 25 basis points last week to 1.5%, the lowest rate in three years. Market sources believe that the Bank of Israel will announce another interest-rate cut, to 1.25%, at the regularly scheduled date next Monday, in order to fight the strengthening of the shekel, Globes said.

However, FXCM Israel stressed that the trend in the dollar on world markets was the main factor affecting the shekel-dollar rate. “Last week’s breakout by the dollar on world markets may indicate an upward turnaround. The dollar is strengthening because of growing signs that the Federal Reserve is drawing up a plan to reduce its quantitative easing, and that it is getting the financial market used to the idea.”

Regarding BOI intentions, Prico Risk Management and Investments CEO Yossi Fraiman opined that the Bank will not announce an interest-rate cut at the upcoming decision, “preferring to save its ammunition for when it will be needed to stem the strengthening of the shekel, or to stimulate economic activity.”

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