In light of the last night’s approval of the budget, the value of the dollar experienced a notable surge today (Wednesday). The greenback has risen by 1.6% and was trading at around NIS 3.73 per dollar, reaching highs not seen since 2020.

Yesterday, the dollar exchange rate began to rise in response to statements made by Chief of Staff Herzi Halevi, who expressed concern about impending negative developments that could necessitate military action against Iran as it has achieved unprecedented levels of uranium enrichment. These remarks were delivered during a speech at the Herzliya conference, held at Reichman University.

Yossi Freiman, CEO of Freeco Risk Management, Financing, and Investments, told The Marker that fears of a security escalation and concerns about the lack of progress in negotiations between the government and the opposition parties regarding the judicial reform led to an increase in demand for the dollar yesterday. This caused the shekel to lose value against the dollar as it climbed above the NIS 3.7 threshold.

The rise of the dollar was briefly curtailed near the NIS 3.71 level due to forex supplies from exporters, leading to a quick correction towards the NIS 3.67 level. However, demand from foreign banks and financial institutions reignited, causing a swift ascent of the shekel back to NIS 3.73.

Freiman further emphasizes, “Given the prevailing uncertainty and limited availability of foreign exchange, we can expect the roller coaster ride and sharp fluctuations in the dollar exchange rate to persist.”

He adds, “A potential increase in interest rates in the United States may weaken the stock market and generate substantial demand for foreign exchange. This demand may arise from institutional entities seeking to adjust their hedging strategies to align with the value of their investment portfolios.”

Psagot’s chief strategist, Uri Greenfeld, agrees that worries about security and legal reform pose the greatest threat to the shekel at this stage. Greenfeld told Globes that the rise in the shekel/dollar exchange rate is the result of heightened uncertainty brought on by the Chief of Staff’s comments, and the approval of the budget brings the debate of legal reform back to the table. As we can currently observe in the forex market, the risk premium increases as uncertainty grows. Conversely, once confidence returns, the dollar-shekel exchange rate may moderate. Thus, sentiment continues to play a major role on the foreign exchange market.