Dollar Holds Steady at 3.04 Shekels Amid Global Market Volatility

The U.S. dollar is trading at 3.04 shekels, slightly down from its official rate of 3.049 shekels. This comes as the dollar strengthens globally, coinciding with a surge in U.S. bond yields and anticipation of the Federal Reserve's upcoming interest rate decision.

International markets show the euro down 0.1% against the dollar at $1.154, and the pound weakening by 0.1% to $1.349. In Japan, the dollar gained 0.2% to 154.65 yen, while the dollar index rose 0.2% to 99.32 points.

In Israel, the August inflation index rose 0.7%, with overall inflation remaining at 1.5%. Yossi Menashe of Altshuler Shaham Financial Services noted that the local market awaits crucial indicators on Israel's interest rate trajectory. He highlighted the importance of observing housing, services, and import price pass-through to local prices, as higher-than-expected figures could limit the Bank of Israel's room to cut rates.

The strengthening dollar and rising U.S. bond yields are partly driven by continued selling pressure on U.S. government bonds. The 10-year Treasury yield climbed to 5.026%, its highest since 2007, ahead of the Federal Reserve's policy meeting. Markets widely expect a 25 basis point rate hike, which would bring the federal funds rate to a range of 3.75% to 4.00%. This expectation is fueled by August inflation data remaining significantly above the Fed's 2% target.

Analysts from Standard Chartered and Natixis CIB Americas suggest that high inflation expectations and rising energy prices, exacerbated by Saudi oil pipeline disruptions and crude oil prices exceeding $100 per barrel, are contributing to market pressure. Some analysts, like Komal Sri-Kumar, warn that even a 25 basis point hike might not curb rising long-term bond yields and could lead to a yield curve inversion.

Meitav Investment House believes market tension stems from both inflation data and a shift in the Federal Reserve's tone. Chief Economist Alex Zabezhinsky suggests the Fed may have "painted itself into a corner" with hawkish messaging, potentially leading to unnecessary rate hikes that could harm the economy, particularly given weaknesses in private consumption and construction. He noted that while U.S. inflation is at 3.4%, core inflation has slightly decreased, with energy prices being the main driver of the overall increase. Zabezhinsky concluded that the Fed is likely to raise rates primarily to calm markets, despite potential economic downsides.