The foreign exchange market has experienced another shift in direction as the shekel strengthened against main foreign currencies. On Tuesday, the dollar saw a decline of approximately 1.5% against the shekel, settling around 3.64 shekels. Similarly, the euro also weakened against the shekel by 2%, with a trading rate of about 3.99 shekels.

This recent trend marks a departure from last week when, on the day of the abolition of the reasonableness standard (last Monday), the dollar had reached a level of NIS 3.72.

Over the past few months, the local foreign exchange market has endured significant volatility, with the dollar exchange rate fluctuating widely between NIS 3.75 per currency at its highest point and NIS 3.55 at its lowest.

Ronan Menachem, Chief Economist of Bank Mizrahi Tefahot, notes that the market is now stabilizing after reacting to the sharp declines in the value of the shekel following last week’s passing of the legal reform legislation. Additionally, comments from rating companies suggesting no immediate downgrade of Israel’s credit rating have provided a sense of calm in the market. However, uncertainties surrounding the Knesset’s future actions still prevail, causing a cautious wait-and-see approach.

Menachem also emphasizes, that aside from the political crisis, positive economic indicators in Israel are playing a role in bolstering the shekel. These indicators include a relatively low national debt compared to other countries, decreasing inflation rates, and the Bank of Israel’s assertion that the interest rate is adequately influencing the economy.

Furthermore, Menachem underscores the impact of institutional bodies, which tend to reduce their exposure to foreign currency and purchase more shekels when overseas shares rise. This action contributes to the appreciation of the shekel’s value.

Overall, the foreign exchange market in Israel is experiencing fluctuations driven by a combination of political, economic, and institutional factors. Investors and market participants are closely monitoring developments as the market seeks stability amidst ongoing uncertainties.