The shekel-dollar exchange rate was the highest in six months on Tuesday, reaching 3.529 shekels per dollar, Globes reported.
Analysts attributed the shift chiefly to weak growth figures released for the second quarter showing that the Israeli economy grew at an annual rate of only 1.7% during the quarter. This translates into stagnation in per capita terms, and is the lowest quarterly rate recorded since 2009. The growth rate in the first quarter was 2.8%.
Yossi Frank, CEO of Energy Finance, explained the causes of the shift: “The dollar-shekel rate is at a six-month high for three reasons. First and foremost are the GDP and inflation figures. It’s no longer possible to hide behind partial data. Inflation is negative, per capita growth is negative, and perhaps they finally realize this in Yerushalayim. And let’s not forget that these figures are from before Operation Protective Edge, and the numbers will only get worse as we go on.”
The second reason flows from the first. “The market by now understands that the Bank of Israel and the Ministry of Finance will have no choice but to take harsh steps. It begins and ends with an unrealistic exchange rate that critically damages the Israeli economy and has to be dealt with more seriously in order to arrive at an equilibrium rate, whether through the interest rate or through unconventional intervention in the foreign exchange market, and through additional means as necessary to bring about a substantial depreciation,” Frank said.
“The third reason is the ease with which technical and psychological barriers were broken through. Many companies took advantage of the depreciation, gambled, and hedged at around NIS 3.5/$, so that this barrier, which everyone thought would be difficult to break through, melted away like butter. The shekel, which was the favorite of the past year, is no longer so much in favor, and plenty of entities have decided to sell it,” Frank said.
FXCM Israel was even more dramatic in its assessment, saying “the sudden weakness of the shekel borders on a selling panic … it could be that we are at last seeing a rebalancing, as is natural in the economic cycle.”