A one-day weakening of the shekel against the dollar on Tuesday appeared to reflect expectations that the U.S. Federal Reserve will announce a reduction in bond purchases in September, Globes reported.
The shekel-dollar exchange rate rose 0.16%, compared with Monday’s representative rate, to $3.551/$, and has also risen 0.16% against the euro to NIS 4.721/€.
FXCM Israel explained the situation on Tuesday in terms of expectations that the Fed will make a reduction in bond purchases. The shekel-dollar exchange rate is highly correlated with the dollar’s movements against other currencies, and there are no domestic factors affecting trading in the shekel at this time. The Bank of Israel is passive for the moment, and all are waiting for the next BOI governor to be named.
Atrade says that foreign currency speculators are exploiting the power vacuum at Israel’s central bank. “Despite yesterday’s rise in the shekel-dollar exchange rate, the bearish potential still exists. Movement below NIS 3.50/$ will cause the exchange rate to fall to NIS 3.45/$. It seems that halting the strengthening of the shekel will be a mission that is hard or even impossible.”
Meanwhile, an outcry over the surging shekel came from Israel Association of Electronics and Software Industries chairman Elisha Yanay. He issued an urgent request to Prime Minister Binyamin Netanyahu, Minister of Finance Yair Lapid, and Minister of the Economy Naftali Bennett to intervene immediately to halt the appreciation of the shekel against the dollar.
“There is almost no disagreement that Israel has become a target for speculators who see the present weakness in the economy, and are placing orders for shekels without any fear of intervention by either the government or the Bank of Israel. A cautious estimate of the capital invested in the shekel is NIS 40 billion, which is causing the shekel to appreciate and causing irreversible harm to the economy,” Yanay said.
Furthermore, Yanay fears that the continuing shekel-strong market will raise the operating costs of multinationals in Israel. “Seventy percent of high-tech exports are in dollar-linked contracts, and most multinationals operating in Israel are based in the U.S.. The operating costs of these companies are nearing, and even exceeding the operating costs of these companies in the U.S.” Yanay said.