Dollar Strengthens on Fed Bond Cut

The shekel is weakening against the dollar, but strengthening against the euro in morning inter-bank trading today. The shekel-dollar exchange rate is up 0.23%, compared with yesterday’s representative rate, to NIS 3.47/$, but the shekel-euro exchange rate is down 0.38% to NIS 4.799/€.

On Wednesday, the Bank of Israel set the shekel-dollar representative exchange rate at NIS 3.462/$, unchanged on yesterday’s rate and set the shekel-euro representative exchange rate at NIS 4.817/€, up 0.09%.

In international markets, the dollar has been strengthening against leading currencies, and is traded at $1.384/€ against the euro, and $1.655/£ against sterling, but it has weakened to ¥102.27/$ against the yen.

As expected, the U.S. Federal Reserve yesterday decided to cut the rate of bond purchases by $10 billion per month to $55 billion starting April. The Fed also said that unemployment of 6.5% will no longer be a target for changing the zero interest rate policy, and that from now on it will take into account a range of economic criteria before deciding whether to raise the interest rate. However, the rate is expected to remain unchanged for at least six months.

Utrade Investment House senior analyst Elad Salomon thinks that the Fed’s decision to continue injecting capital into the U.S. equity market is a vote of confidence in the U.S. economy but that it will weaken the dollar.

FXCM Israel’s research department thinks that the Fed’s comment about the interest rate is the first concrete sign of a future rate rise. “Janet Yellen who was supposed to be a “pure white dove” and who even cause speculation before she took up her post that she would expand bond purchases, has surprised us.”

This article appeared in print on page 7 of the March 21st, 2014 edition of Hamodia.