The Israeli shekel fell sharply against major currencies today, reaching a five-month low of 3.7 shekels per U.S. dollar. Against the euro, the shekel also depreciated by approximately 0.5%, now standing at 4 shekels per euro. This marks a 2.7% decline against the dollar since the start of the month, reversing the gains seen during the previous ceasefire period and the diplomatic arrangement with Lebanon.

Market analysts attribute the shekel’s recent weakness primarily to domestic political and security concerns. The collapse of the ceasefire with Hamas and the resumption of intense fighting have heightened uncertainty in Israel’s economy. This has led to a rise in the country’s risk premium, discouraging foreign investment and weakening the shekel.

Political instability has also played a role. The government’s decision to dismiss Shin Bet chief Ronen Bar, followed by a High Court ruling that temporarily froze the move, has fuelled tensions within Israel’s leadership. The political friction adds to investor anxiety, further pressuring the local currency.

Rafi Ghozlan, chief economist at IBI Investment House, noted that Israel’s market is shifting from a period of ceasefire and potential normalization with Saudi Arabia to renewed military action and legal uncertainties. “The combination of war and legal reform concerns, along with global market declines, is driving the shekel’s weakness,” he explained.

The key question now is whether this trend will persist or if the shekel will stabilize. Over the past year, the currency has fluctuated within a 3.60–3.80 shekel-per-dollar range. Ghozlan suggests that under the current circumstances, the shekel could move toward the weaker end of this spectrum. Therefore, unless geopolitical tensions ease or external economic factors shift in Israel’s favour, the shekel may continue facing downward pressure in the coming weeks.

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