JP Morgan Predicts Israeli Election Could Shift Shekel Value by Up to 3%

JP Morgan economists estimate that the upcoming Israeli elections on October 27 could cause the shekel to fluctuate by as much as 3% in either direction. In a report published by Reuters, the bank noted that investors are weighing the chances of political change after years under Prime Minister Benjamin Netanyahu. The report highlights that market odds increasingly favor an opposition victory led by former IDF Chief of Staff Gadi Eisenkot, though the calculation remains complex due to past polling underestimations of the Likud party.

The economists do not expect significant changes in fiscal or economic policy regardless of the election outcome. However, the results are likely to impact Israel's relations with Western allies and international investor perceptions concerning judicial reforms and policies in the West Bank and Gaza. Assuming a 55% probability of an opposition win, JP Morgan predicts the shekel could strengthen by 2% to 3% as concerns over reforms ease. Conversely, a Netanyahu victory might weaken the shekel by about 3%. A scenario involving a broad coalition and prolonged political uncertainty would likely keep the shekel stable.

Despite these scenarios, the bank views the overall risk-reward balance as fairly even, supported by Israel's strong technology sector, a positive external environment, and the Bank of Israel's potential resistance to excessive currency appreciation. JP Morgan also recalled that the shekel has historically been sensitive to institutional concerns, having depreciated nearly 10% against the dollar from early 2023 through the period of controversial judicial reform proposals until the Hamas attack on October 7.