Shekel Dip Signals No Trend

YERUSHALAYIM -

The strengthening of the dollar relative to the shekel in recent days may only be temporary, due to uncertainty precipitated by the Egyptian crisis.

In the longer term, the trend of a stronger shekel will likely prevail, according to analysts quoted in Globes.

FXCM Israel said on Wednesday, “The dollar has strengthened significantly against leading currencies, due to market fears about upheaval in Egypt. Any confrontation that undermines geopolitical stability in the Middle East results in market fears about the oil trade, and demand for dollars, as a safer asset, immediately soars.”

But FXCM cautioned that unsettling local developments should not be ignored, such as Jacob Frenkel’s appointment as governor of the Bank of Israel.

“Despite the strengthening of the dollar in international markets, the shekel-dollar exchange rate is divorced from global trends in the dollar, and continues to tread water. This again underscores the status quo in the local market, where investors and speculators are waiting for Frenkel to take up office. Although Frenkel’s appointment was initially welcomed by the market, questions have since arisen whether he is the right appointee for the job, and whether he will be able to fit into Fischer’s big shoes. Most of all, there is concern that the governor will adopt a monetary policy that is too tight, which will burden the market in its current condition, and maybe even worsen the recession.

In particular, there is uncertainty about whether he will continue Fischer’s policy of protecting the dollar. “It is unclear whether Frenkel will act to stop the appreciation of the shekel to protect exports. Therefore, it is possible to look at the relative strength of the shekel in the past few days as reflecting, to some degree, a lack of confidence in the appointment of Jacob Frenkel as the new governor of the Bank of Israel.”