The shekel has resumed its downward trajectory against both the dollar and the euro, indicating a continuation of its weakening trend. During the first half of the day, it experienced a 0.6% decline against the greenback, trading at approximately NIS 3.72. Similarly, the shekel dropped by 0.5% against the euro, reaching the NIS 4.04 range.
Rafi Gozlan, IBI’s chief economist, emphasizes that recent developments in the political arena have prompted foreign exchange market participants to reassess their expectations regarding Israel’s political reality. Following the coalition’s unsuccessful attempt to reach a compromise on the committee for the selection of judges, there are growing speculations about legislative attempts to pass judicial reforms without an agreement. These speculations have increased the economy’s risk premium, leading to heightened volatility and speculative activity in the foreign exchange market, further exacerbating the short term outlook.
Experts believe that a number of factors are influencing the current situation. Ronan Menachem, Chief Markets Economist at Mizrahi Tefahot Bank, suggests that the shekel’s depreciation against the dollar can be partially attributed to the global strengthening of the dollar, particularly against the euro. This strengthening is a direct result of recent statements made by the Federal Reserve, which strongly indicate a real possibility of further interest rate increases in the US.
Menachem also highlights other factors affecting the local foreign exchange market. He points out that Israel is approaching two significant events scheduled to take place in the coming days – one in the political arena and the other involving the Israeli economy. The advancement of legal legislation, as revealed by the Prime Minister in an interview with the Wall Street Journal, is set to take place next week. Additionally, the Bank of Israel is also expected to announce its stance on the interest rate. And the latest depreciation of the shekel can certainly add further inflationary pressure that may influence the upcoming decision.
Furthermore, central banks worldwide, including those of the United Kingdom, Canada, and the European Union, have been raising interest rates for some time. In light of this global trend, Menachem suggests that if the Bank of Israel does not raise the interest rate next week, the shekel may face further devaluation. The reason being is that investors may see it as a less attractive investment option compared to other currencies.