Forex Trading Limited as Dollar Holds Above 3.01 Shekels

Forex trading saw limited and stable movements at the partial opening of the week, primarily due to the closure of New York financial markets for the US Labor Day holiday. In line with federal holidays, local foreign exchange activity is also restricted, with Bank of Israel directives preventing the opening or closing of dollar deposits and the execution or receipt of foreign currency transfers.

Locally, the US dollar remained largely unchanged, trading above 3.01 shekels, while the Euro also showed little change, hovering around 3.50 shekels. Globally, the US Dollar Index against major currencies was stable at 99.2 points. The Euro held steady at $1.16, and the British Pound saw a slight decrease of 0.1%, trading near $1.35.

Economists at Bank Hapoalim anticipate that central banks are preparing for interest rate hikes, with some expected soon. The European Central Bank is predicted to raise rates next week, followed by the Bank of Japan a week later. Subsequent rate hikes are anticipated from the US Federal Reserve and the Bank of England.

In the US, attention this week is on August inflation data, with the Consumer Price Index due Friday and the Producer Price Index on Thursday. Following a strong August jobs report, expectations for a Fed rate hike have increased. The market is pricing in a 62% probability of a rate increase to 4.0% by year-end, potentially as early as September, and another hike in March 2027 to 4.25%. There's also a 45% chance of a further increase to around 4.50% by the end of 2027.

Bank of Israel, which recently lowered its interest rate for the third consecutive time, may hold steady in the coming months. According to Bank Hapoalim economists, the window for further rate cuts is closing, and future decisions will depend on geopolitical and political developments. US rates are expected to rise twice by early next year, creating a potential 1% gap with Israel's rate. The markets currently anticipate no change in the Bank of Israel's interest rate over the next year.